What is Equity Release?
There are two types of equity release; Lifetime Mortgages and Home Reversion plans. Both of these are regulated by the Financial Conduct Authority. By using an equity release product, a home owner can draw a lump sum or regular smaller sums from the value of their home, while remaining in their home.
Equity release can play a crucial role in retirement funding and the flexibility and safeguards which are built into plans that complies with the Equity Release Council product standards enable thousands of home owners every year to tap safely in to their housing wealth without having to worry about making monthly repayments.
If you are thinking of taking out an equity release plan then you need to find out as much as you can about your options and weigh up the advantages and disadvantages fully before you decide if equity release is right for you. A fully qualified financial adviser should help you to understand the steps involved and talk you through your options, the effects this might have on state benefits and tax and your obligations. And of course they can also explain the full benefits of equity release. Done correctly, equity release should have no impact on an individual’s tax position or their state benefits; however each individual’s circumstances need to be assessed.
Part of a customer’s choice will be over the type of plan required. In the modern equity release market there are a range of products to choose from, with new and innovative products being created regularly. This means that whatever your equity release needs, there is likely to be an equity release plan available to meet them.
A Lifetime mortgage involves taking a type of mortgage which does not require monthly repayments, although with some plans rather than roll up the interest you can opt to make monthly repayments if you wish.
You retain ownership of your home and interest on the loan is rolled up (compounded). The loan and the rolled up interest is repaid by your estate when you either die or move into long term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into care, meaning that both you and your partner are free to live in your home for the rest of your lives.
Home Reversion Plan
A Home Reversion Plan also allows you to access all or part of the value of your property while retaining the right to remain in your property, rent-free, for the rest of your life. With a Home Reversion product the provider will purchase all or part of your house taking into account your age and your health and will provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life.
There is no day-to-day interference and no restrictions on treating the house exactly as before; as a private home to live in freely.
Within these two categories, there are many different options available and it is important that your current and future needs are matched with the right type of equity release plan, which an equity release qualified adviser can help you with.
An advisor can also help you to establish how taking out a Lifetime Mortgage or a Home Reversion Plan might affect your tax position, your eligibility for means-tested benefits or your ability to move or sell your property. You should talk to your financial adviser about these risks if you are at all unsure.
There are advantages and disadvantages in both types of plans so it is important for you to find out as much as you can, to get qualified advice and, if possible, to talk it over with your family to ensure you choose the best plan to fit your needs.
To understand the features and risks of an equity release plan ask for a personalised illustration from your advisor.
One of the most important things to look out for is the Equity Release Council logo.
Making the most of Equity Release
File size: 1 MB | Type: pdf | Council Publications
The Smith Institute Report on making the most of Equity Release
Complaints and Disciplinary Process
File size: 687 KB | Type: pdf | Resources
Equity Release Council – Complaints and Disciplinary Process