How does equity release work?
Are you able to take out an equity release mortgage on a property that has a Trust registered against it?
No. Unless the lender agrees to leaving the trust in place (and we are not currently aware of any lenders who will), the trust will have to be wound up prior to the equity release completing. The lender will require a first legal charge over the property, which is incompatible with the concept of a trust, where an agreement has been made to pass the equity in the property to the beneficiaries under the trust. Due to the nature of an equity release mortgage, lenders require properties to be free from encumbrances such as trusts and secured loans before you can complete. If your property has a trust on it and you want to arrange for this to be wound up, we strongly suggest that you seek independent financial and legal advice before doing so. The beneficiaries under the trust would usually also require separate, independent legal advice from you.
If I take out an equity release loan, can the provider change the conditions at a later date?
An equity release loan is long-term contract and there are some aspects which a provider (lender) may need to review from time to time. Your adviser should explain to you when you take out an equity release plan that circumstances which apply at the time you take the plan out may not necessarily be the same some years down the line, and that you need to be aware of this. There are three specific areas which lenders may need to keep under review: they are portability, ability to make further withdrawals and the ability to make capital repayments. Looking at each one in turn:
- Portability: it is an Equity Release Council rule that you must be allowed to transfer (“port”) your plan to another property, should you wish to move. But you will need to make sure that your provider is satisfied that the property you wish to move to will represent adequate security for your loan. Providers need to keep their lending criteria under regular review – which means that a property which might have been acceptable at one point in time may not always be acceptable. So it’s important that you discuss the acceptability if any alternative property with your provider before committing yourself to buying it. If you don’t do this, you might find that your options are limited, and you could end up having to repay your loan, which could result in your having to pay substantial Early Repayment Charges.
- Cash Withdrawals/Further Advances: some providers allow further advances, or cash withdrawals under a flexible ‘drawdown’ Lifetime Mortgage at their discretion. This means that future access to further cash sums is not absolutely certain. If your provider declines a request for further cash sums, and you wish to switch to a different provider in order to obtain more money, you will have to repay your original loan. As mentioned above, this could result in your having to pay substantial Early Repayment Charges.
- Capital Repayments: the option for customers to make ad-hoc capital repayments is fast becoming a popular feature of certain rolled-up interest Lifetime Mortgages. It’s up to each provider to decide whether it is able to accept such payments and, if so, how often and how large each payment might be. If you think you might wish to make capital repayments during the life of your equity release plan, you should discuss this with your adviser. In particular, you may wish to find out more about –
- whether your provider reserves the right to cancel the option of making capital repayments;
- whether your provider might restrict access to any Drawdown Cash Reserve for a stated period following receipt of a capital repayment; and
- how any capital repayment would be applied to your loan account if it has several constituent parts (i.e. an initial loan with further cash withdrawals, which may all have different interest rates).
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.
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.
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.
How much can I borrow?
The provider will instruct a surveyor to give a professional valuation of your property that would define the amount that could be released. How much can be released is also dependent on your age and that of your partner (if you are making a joint application) and the value of your property. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’, ie smoking habit.
Is there a minimum value for properties on which equity release is available?
Yes: providers will generally not accept properties which are valued at less than £70,000.