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Solicitors For Equity Release.
There are currently endless TV and press adverts encouraging you to go down the equity release route. With an ageing population and rising property prices more and more people are looking to unlock the money tied up in their home through equity release schemes, but what are these schemes and who is eligible for them?
What is equity release?
‘Equity’ in your home is the difference between the value of your home and any monies or loans that are secured against it (ie a mortgage or other loan). In simple terms : £Value of Home – £ Amount of outstanding mortgage/loans secured against it =£ Equity.
Equity release turns your ‘equity’ into money – for your retirement; a world cruise you’ve dreamed of, home improvements, a new car, your children’s education or perhaps to get them onto the housing ladder.
One could say that endless adverts almost give the impression of it being “free money” but you don’t have to be a genius to know that there is rarely such a thing as ‘free’ where money is concerned.
Are you eligible?
- Homeowners need to be aged 55 and over;
- You must be the named legal owners of the property – not, for example, a beneficiary under a trust;
- You must have enough equity in the property – if there is an existing mortgage this will have to be repaid;
- Minimum amounts apply – typically £10,000;
- Your property must be an eligible property and free of any defects that would affect your ability to obtain a mortgage.
What are the advantages of equity release?
By releasing the money tied up in your home, you can receive a tax-free lump sum to spend, whilst retaining ownership of your property, for example:
- To carry out desired home improvements;
- Have a holiday of a lifetime;
- Be more comfortable in your retirement;
- Give early monetary gifts to children or other family members.
What are the disadvantages?
Probably the biggest disadvantage of entering into an equity release scheme is that it will decrease the monies available in your estate following your death.
It’s a good idea to discuss any plans with your family beforehand to avoid any potential unhappiness in the future;
- It may be more expensive in the long run than downsizing to a cheaper property;
- Early repayment charges may apply;
- You must consider whether the lump sum payment may affect means-tested benefits such as pension credit;
- There may be other disadvantages depending upon the type of scheme you choose.
Types of Schemes
There are two main types of equity release schemes; life-time mortgages and home reversions plans.
- Life-time mortgages. The most popular of these schemes are life-time mortgages. With these, you can choose to release equity from your home in a lump sum, or you can choose to ‘drawdown’ cash sums as and when you require them. There are no monthly repayments although some plans do allow the option to make payments if you want. If you do not make any repayments, the interest will build up over time and will become payable upon your death or when the property ceases to be your main residence.
- Home reversion plans are much less common, in fact, they account for less than 1% of the market. Essentially, you sell a percentage of your property to the plan provider, in return, the provider pays you a lump sum or agreed instalments and provides you with the right to live in your property, rent-free, for the rest of your life. Upon your death, the property will be sold and the proceeds will be used to settle your equity release debt. Note you will have limited control over any future sale of the property.
Can I still move house?
If you want to downsize or move home in the future you still can. Some plans allow you to downsize and repay your loan without penalty and others will allow you to transfer the loan to your new home.
When does the loan have to be repaid?
The loan needs to be repaid upon death or when the property is no longer your primary residence, for example you move into a care home. As with any mortgage you must comply with certain conditions (for example maintain buildings insurance and keep the property in a good state of repair).
I am interested in equity release, what do I do?
Talk to an independent financial advisor regulated by the Financial Conduct Authority. They will discuss the plans available and whether or not it is the right thing for you.
Do I need legal advice?
Yes, if you have decided it is the right thing for you, you will need to appoint a conveyancing professional who will explain the legal consequences of proceeding with the plan.
For a helpful equity release factsheet visit:
Your new lender will insist you receive legal advice – talk to us today. We offered fixed fees for Equity Release schemes, with a face-to-face meeting with a highly experienced conveyancer who will have dealt with numerous schemes.