What is equity release?
Equity release is a way of releasing the wealth tied up in your property without the need to move. With equity release products, you can either borrow against the value of your home or sell all or part of it for a regular monthly income, a lump sum, or the facility to get at equity as and when you like or a combination of these options.
Can I release equity from my home if I have not yet paid off my mortgage?
If you still have an outstanding mortgage on your property you will need to pay it off in full, either by using some of the proceeds from the equity you release or from other funds. Once that is done, the rest of the money you release can be spent as you wish.
What types of equity release are there?
There are two main types of equity release plan on the market – Lifetime Mortgages and Home Reversion Plans. Both are regulated by the FSA and are covered by the remit of the Equity Release Council Code of Conduct. For more information about what Lifetime Mortgages and Home Reversion Plans are, please see Equity Release Plans.
Is equity release right for me?
Equity release plans are not right for everyone and it is important that you fully consider your options and receive independent financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you choose one that meets your needs.
Remember that taking an equity release plan is generally a long term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without any penalties. A financial adviser can help you to choose the plan that is right for you.
How do I go about setting up an equity release plan?
You should always seek professional advice. It is important to explore all the options that could meet your financial needs before choosing an equity release plan. Doing some research will also help when you come to speak to an adviser.
You can find information from the Financial Services Authority which issues a useful guide – A Guide to Unlocking the Wealth in Your Home.
You can also get information from individual Equity Release Council members or from other qualified advisory firms.
Where can I find a qualified Independent Financial Adviser?
The Equity Release Council membership includes qualified Financial Advisers and you can find their contact details on the Equity Release Council members directory.
What are the alternatives to equity release?
Before taking out an equity release plan, you should check to see what the alternatives are. For example, you may have other investments, savings or assets to draw on, or you may wish to continue some form of paid work. You could downsize to a smaller property or one of lower value – perhaps by moving to a different part of the UK where house prices are cheaper.
Downsizing is likely to give you maximum value from your home, but you may decide that you do not want to leave your home or move away from family and friends and you must consider the cost of moving. You may also want to think about renting a room in your home, or taking a loan from family and or friends.
Ultimately you will need to weigh up all the alternatives and, along with help and advice from your financial adviser, decide whether any of these alternatives meet your requirements.
What is a no negative equity guarantee?
If you take out an Equity Release Council approved equity release product, then your loan will come with a no negative equity guarantee. This is part of the Equity Release Council Code of Conduct for providers.
When you die or move into long-term care, your home is sold and the money is used to pay off the loan. Anything leftover goes to your beneficiaries. However, in the unlikely event that the value of your house has decreased significantly it would be possible that the value of your home no longer covers the value of the equity release loan. The Equity Release Council no negative equity guarantee, which all Equity Release Council members offer on their equity release products, means that in this situation the remainder of the loan would be written off, ensuring that whatever the future holds, your beneficiaries would never have to meet the cost of your loan.
How much will setting up an equity release scheme cost me?
While costs vary from provider to provider, a very rough estimate of the cost of setting up an equity release scheme is around £1,500 plus any fee that you have to pay your financial adviser. However there may be offers from time to time that can reduce the cost of these fees.
The costs involved in setting up an equity release plan usually include:
- An arrangement fee to cover the provider’s costs of setting up the plan
- A valuation fee to pay for your home to be valued
- Legal fees to pay for your solicitor
- Buildings insurance – loans are conditional upon you having the appropriate cover in place.
There may be other fees depending on the type of plan you take, or there may be fewer fees. Your adviser will notify you of all the due fees and this will also be made clear on the Key Facts Illustration your adviser gives to you.
What is the standard process for taking out an equity release plan?
Once you have decided that you want to know more about equity release you should set up a meeting with your financial adviser. Your financial adviser will review your personal circumstances to see if an equity release plan is the most suitable option for you, taking into account other sources of funding that you may have as well as any state benefit entitlements.
Based on this information, your adviser will provide you with some recommendations and a personal Key Facts Illustration. This summarises all the important details and gives you a clear understanding of the costs involved. You may want to involve your family at some or all of these meetings.
If you are happy with the product being recommended then you will need to complete an application form. Your financial adviser will help you complete this and then send the form together with any fees to the provider.
It is wise to make sure the solicitor you choose is experienced in equity release as this will keep the costs to a minimum and ensure a smooth process. Look in the solicitor section of themember directory to find a specialist solicitor that is registered with the Equity Release Council.
The provider will instruct a RICS qualified surveyor to come out and visit your home and produce a valuation for the provider. A copy of the report may be sent to you and/or your solicitor.
Once the survey is complete and the amount you can borrow has been confirmed, you and your solicitor will receive an Offer Letter. Your solicitor will talk you through the offer. When you are happy with it, you and your solicitor sign the acceptance form. This shows that you understand the features and risks of the plan, your solicitor will also need to sign the Equity Release Council Solicitors Certificate, to confirm they have discussed key points with you and you understand the nature of the contract.
Your provider will then carry out some legal checks in relation to the title of your property. Once this is completed the cash is released to your solicitor who will arrange for the funds to be transferred to you.
How long will it take to access the funds?
Timescales will vary from provider to provider. However, it usually takes 8-12 weeks from the day your application is received by the provider to the day your money is received by your solicitor.
How much can I borrow?
The amount you can borrow usually depends on your age and health and that of your partner, and the on value of your property. A surveyor will be instructed by the provider to secure an accurate valuation of your property. If there are two people jointly taking out the plan, then the amount you can borrow will be based on the age of the youngest borrower. If you are in ill health then you may be able to apply to release a larger portion of the equity.
How old do I need to be?
To qualify for a Lifetime Mortgage you need to be aged 55 and over. If you are taking out the plan with your partner, then the age of the youngest borrower must be at least 55. For a Home Reversion Plan you must be a minimum of 60 years old.
What impact will it have on my family?
Taking out an equity release plan could leave your family with little or nothing to inherit from your property when you die. You and your family need to feel comfortable with this possible outcome.
You may be considering releasing equity from your home to help younger family members get on to the property ladder or pay for school fees etc. In which case the implications of releasing the equity now and not having it to release later need to be considered.
It may be worth including your family in any discussions you have with your financial adviser or your solicitor.
What happens if I live with someone else?
If you are married, in a civil partnership or living with someone as a partner and you are both eligible by age, you can take out a joint equity release plan. Your spouse or partner will then have the right to live in the property for as long as they wish, should you pass away or move into long-term care. If you have a friend or tenant living in your home the provider will want to make sure that they have no rights to continue to live there when you move out or pass away.
What happens to my partner if I die?
If your plan is in joint names, then your partner will be able to continue to live in the property under the same terms. If it is in your name only, then unless the mortgage can be paid in full the property will have to be sold and your partner will have to find somewhere else to live. It is normally a requirement that the plans are written in joint names from the outset to ensure that both parties have security of tenure.
In the case of re-marriage or co-habitation after a plan has been taken, you must inform your provider. It may not be possible to add your new partner to the plan, in which case they will not have security of tenure.
What happens if I want to repay the loan early?
If you repay a Lifetime Mortgage early you may be liable for extra charges called Early Redemption Charges. These can be quite expensive.
Most equity release plans are intended as long term options. You ensure you inform your adviser at the time of taking out the plan if you think you might want to repay your loan early. There are products available with specific periods of early repayment penalties, some products which have no such penalties and some products which have early redemption penalties that stretch for a pre-determined time such as 5 to 10 years.
If you have a Home Reversion Plan and want to pay off the loan early you may have to sell the property to pay off the outstanding due amount. You may find that you have too little money to purchase another property. However Equity Release Council Home Reversion Plans are portable to new acceptable properties and you may find that this is the best option for you.
Could this type of scheme help me reduce any inheritance tax?
The use of an equity release scheme will reduce the value of your estate. You should speak to your financial adviser if you are considering using equity release for this purpose.
What happens if a regulated company goes into liquidation and we have a lifetime mortgage with them?
If the provider is sold to another company, the other company will take on the portfolio of agreements and will carry on according to the terms of the agreement. There will be changes only if specified in the original contract.