Equity Release

Whether you still own your home after releasing equity depends on the scheme you choose.

With a lifetime mortgage, you can release a lump sum or receive regular payments while retaining ownership of your home.

In a home reversion plan, you sell a portion of your property to a provider in exchange for a lump sum or regular payments. You can continue to live in your home, but you no longer own it completely. When the property is sold, the provider gets their share of the profits.

The advantages of equity release are as follows:

• Quick access to cash. You can unlock a portion of your home’s value without having to move or sell it.
• It’s tax-free. The released funds are typically tax-free, and you can use the money for anything you like.
• Most plans guarantee that you can stay in your home for the rest of your life or until you move into long-term care.
• No monthly payments. With a lifetime mortgage, you don’t need to make monthly repayments, although interest accrues.
• Flexible payout options. You can choose to receive the funds as a lump sum or in instalments, providing flexibility in how you use the money.

The disadvantages of equity release:

• Reduced inheritance. Equity release will reduce the amount you can leave as an inheritance to your heirs.
• Compound interest. With lifetime mortgages, interest accumulates over time, potentially eroding the equity in your home.
• Costs and fees. Equity release products often come with substantial fees, including arrangement fees and solicitor’s fees. These can reach approximately £1,500 – £3,000 in total, depending on the plan you choose.
• Property value risk. If your property’s value doesn’t increase sufficiently, you may end up with little or no equity left.
• Impact on benefits. The money released can affect your eligibility for state benefits or social care funding.
• Difficult to undo. These schemes can be complicated to unravel if you change your mind.
• There might be early repayment charges if you change your mind, which could be expensive.
• Equity release is more expensive than an ordinary mortgage.

There are typically two main payout methods:

• You can receive a one-time lump sum payment, which you can use for various purposes, such as home improvements, debt consolidation, or to supplement your retirement income.
• Or choose regular income payment. Some equity release products allow you to receive a regular income, similar to an annuity, which provides a steady stream of money over time.

The choice of payout method will depend on the specific equity release product you select and your financial goals.

It’s up to you to decide how you want to use the funds. Some common uses include:

1. Home improvements – you can use the money for renovations or to make modifications to your property to improve your living conditions and value.
2. Debt consolidation – you can pay off existing debts, such as credit card debt or an outstanding mortgage, to reduce monthly financial commitments.
3. Lifestyle expenses – you may use the funds towards travel, leisure activities, or supplementing your retirement income.
4. Gifting to family – some people choose to gift money to their children or other family members to help them with major expenses like buying a home or paying for education.
5. Healthcare and long-term care – you can use the funds for medical expenses, long-term care, or any other healthcare-related costs.

There’s no single interest rate for equity release products. Different lenders will offer different rates for each one.

Having said that, the lowest Equity Release rate is currently 6.33% (AER) fixed for life, while the highest interest rate in the market is 9.04% (AER).

In the Autumn 2022 Market Report, the Equity Release Council stated that average interest rates for Equity Release were 5.74%.

The repayment option depends on your plan. With a Lifetime Mortgage, you do not make monthly repayments. Instead, the loan, including any interest that accrues, is repaid when you pass away or move into long-term care. The property is typically sold, and the sale profits are used to repay the loan. If there is any equity remaining after the loan is repaid, it goes to you or your beneficiaries.

In a Home Reversion Plan, you sell a portion of your home to the equity release provider. You receive a lump sum or regular payments and retain the right to live in your home for the rest of your life. When the property is sold, either when you pass away or move into long-term care, the provider gets its share of the proceeds based on the percentage of the property you sold.

No, there are no taxes for profits from equity release schemes like Lifetime Mortgages or Home Reversion Plans. The released funds are tax-free, as they are considered a loan or capital withdrawal from your home’s value.

Equity release can indeed impact your state benefits or pension.

An equity release plan may affect your eligibility for benefits such as Pension Credit, Housing Benefit, or Council Tax Reductions. The money released from your home could be considered as capital or income, which can reduce the benefits you receive.

While releasing equity from your home may not directly affect your entitlement to the basic State Pension, it could impact any additional state pension you might be entitled to.

The risks associated with equity release include reduced inheritance, the impact it could have on your eligibility for state benefits, interest build-up, high fees, and choice of housing options.

Furthermore, the value of your property may not increase at a rate that outpaces the interest on your equity release plan, which could decrease the equity.

If you want to move to a different property later in life, your equity release plan may limit your options, as you will need to consider how to repay the loan.

The good news is that some equity release plans are portable, which means you can transfer them to the new property. The bad news is that not all properties may be eligible for equity release. The new property must meet the criteria set by your equity release provider.

Many lifetime mortgages offer the option to make partial or full repayments, known as “voluntary repayments” or “partial repayments,” without incurring penalties.

Repayment options for Home Reverse Plans can vary. We will discuss the terms of early repayment with you before arranging the loan.

Equity release typically means that you borrow against the value of your home, either through a Lifetime Mortgage or a Home Reversion plan. The money you receive from these schemes is a loan, and it will need to be repaid with interest or by selling your home after you pass away or move into long-term care. This means that the amount available for your heirs as an inheritance will be reduced.

With a Home Reversion plan, you sell a portion of your home’s value to the provider in exchange for a lump sum or regular payments. This means that your heirs will only inherit the remaining portion of your property’s value after the provider’s share has been deducted.

The terms of the equity release plan, such as interest rates and the percentage of your home’s value you borrow or sell, can affect how much your home’s value will be reduced over time. It’s important to understand how these factors will impact the ultimate inheritance you leave to your beneficiaries.

Your Lifetime Mortgage will continue until you (or your surviving partner) either pass away, move into long-term care, or choose to sell the property. If you opted for the Home Reversion Plan and you outlived the plan, you can continue to live in the property for the remainder of your life.

You don’t need to involve a financial advisor, but we recommend it for peace of mind.

We always begin by discussing your situation and your goals. If we believe equity release is not the right product for you, will give you an alternative.