What is Equity Release and how does it work?
Equity Release is designed to help those aged between 55 and 95 release money from the value of your home without having to move out of it. You can either take out a loan secured on your home, or sell part, or all, of your home to give you a regular income or a lump sum, or both.
With increasing pressures on retirement savings, pensions and income to last longer as we become more active in our later life, Equity Release is becoming more popular. For most people, the home they live in represents their major capital investment. As they grow older, many owner‐occupiers find themselves in the frustrating position of having a very valuable asset on the one hand, and a restricted income on the other. Using the capital value of the house, while continuing to live in it, can help to ease this situation. The money gained from Equity Release can be used in any way you see fit.
There are two main types of Equity Release schemes, Lifetime Mortgages and Home Reversions scheme.
A loan is taken out on the value of your home. The loan is secured on the property and provides additional monies (lump sum, regular income, or a combination) that you can spend or invest as you choose. There are no monthly repayments to be made on the loan as the interest due rolls up each year and is added to the loan amount.
Repayment of the loan and rolled up interest is deferred until your home is sold, usually when you move into long term care, or on death. Some plans offer the additional option of a no‐negative equity guarantee. The amount that can be released is typically linked to the borrower’s age.
Home Reversion Plans
With this plan, you agree to sell a specific percentage of your home to a reversion company, for a fixed amount.
The plan provider becomes the owner (or joint owner) of the property, but the plan‐holder retains the right to live in the property for the rest of their lifetime.
The cash sum that the plan‐holder receives from the sale is based on both age and the proportion of the property that is sold. However, even if 100% of the reversionary interest is sold, the capital sum received will only represent a proportion of the current value of the house, because of continuing right to live there. The plan holder is still responsible for the upkeep of the property.
If only a share in the property is sold, it is possible to sell another share in the property at a later time, taking advantage if any increase in property values.
The payment to the plan‐holder is not a loan. There is no interest or loan to repay. Instead, when your home is sold the reversion company receives the same proportion of the sales proceeds.
When the last surviving plan‐holder dies, the property is sold. If the policy provider took full ownership, it takes the whole of the sale proceeds (including any appreciation in the value of the property). If the policy provider took only a share of the property, it takes that share plus any appreciation in the value of the share, the remainder passing to the plan‐holders estate. If house prices have risen the company will benefit from this.
What is the Equity Release Council?
The Equity Release Council (ERC) originally launched in 1991 is an organisation that is supported by the leading providers of equity release within the UK. It was created to promote safe equity release products and to safeguard the interests of homeowners.
Not all providers are members of this organisation, which operates a code of practice, ensuring a no‐negative equity guarantee. At Bread and Butter Advice we will always consider a provider who is a member of the Equity Release Council before any other.
Bread and Butter Advice are specialists in advising the older client, qualified to the highest levels and passionate about giving correct advice and help. If you would like to discuss in detail how Equity Release may be of help to you, please call us on 0800 0151 069 for a free consultation with one of our financial advisers. Or you can e-mail firstname.lastname@example.org
You can also obtain a free guide from the Money Advice Service at: www.moneyadviceservice.org.uk
Your home may be repossessed if you do not keep up repayments on your mortgage.
This is a lifetime mortgage/home reversion scheme. To understand the features and risks, ask for a personalised illustration