Many homeowners aged 55 or over may consider equity release to free up some cash to pay off debts, give to loved ones or go on holiday.
It is a big financial commitment and deciding to purchase an equity release product should not be considered lightly. Everyone’s circumstances are different and what’s right for you may not be right for someone else.
In the UK the industry is regulated by the Financial Conduct Authority (FCA) and governed by the Equity Release Council (ERC). This means the industry is safer than it has ever been and expert advice is always available. For equity release you must get advice from a specialist equity release adviser.
Advice:
Everyone who is considering purchasing an equity release product must receive financial and legal advice from trained, independent professionals. Read our blog about finding the right adviser.
You can rest assured that all advisers at Access Equity Release are fully qualified and we are regulated by the FCA.
Your home:
If you take out a lifetime mortgage you will still own your own home and any increase in its value is yours.
The ERC states that the consumer must have the right to remain in their property for life, or until they need to move to long-term care. This is as long as the house remains your main residence and you abide by the terms and conditions of your contract.
If you sell part of your home as part of a home reversion plan then that part will belong to the provider but you can still continue living there, as long as you meet their terms and conditions.
Most plans don’t require any repayments, unless you choose to, and this means you cannot fall into arrears, default or have your home repossessed for non-payment. If you do want to make an early repayment you will have been made aware of any early repayment charges when choosing the product.
Interest rates:
The interest on a lifetime mortgage can start to increase quite quickly over time. Therefore the ERC states that interest rates must be fixed, or if they are variable, there must be a cap which is fixed for the length of the loan.
While the compound interest can mean the total amount which needs to be paid back rises substantially, it is important to remember that the value of houses typically increase over time too. Your home is likely to be worth a lot more at the end of the plan than it is now. This extra equity could be used to offset the final amount to be paid.
No negative equity guarantee:
All equity release plans come with a no negative equity guarantee which means when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
Inheritance and means-tested benefits:
If you are using equity release to give a lump sum to family or friends this will be exempt from Inheritance Tax (IHT) if you live for another seven years. However, if you die within seven years, the gift will be brought back into account when the tax for your whole estate is calculated. Make sure you receive specific estate planning advice to discuss your personal situation and to avoid leaving your loved ones with a tax bill shock.
Equity release can affect some means-tested benefit you may be receiving. This is because borrowing a large sum of money as a lump sum could mean you no longer meet the eligibility criteria. Make sure you check this when choosing the right product for you.
:: Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisors.
