What is equity release?

What options are available to borrowers in later life?

It is important to consider all options (not just Equity Release) – mainstream mortgage, retirement interest only mortgage, and Equity Release mortgage – alongside other avenues such as a personal loan, help from family, or even taking a lodger, before deciding whether Equity Release is “right” for you.

Your adviser will need to discuss these options with you. In order to reach a recommendation he/ she will ask for detailed information about your situation and requirements (including your income position). This is expected practice so that the adviser can consider all of the available options, including (but not limited to) Equity Release.

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 homeowner can draw a lump sum or regular smaller sums from the value of their home, while remaining in their home.

A Lifetime Mortgage is very similar to a mainstream interest only mortgage, with the main difference being that the interest is added to the account on a regular basis and “rolled up” over the term. Some products will allow payments to be made to reduce the impact of this roll up. The loan plus interest is repaid from the sale of the property, either on death (or second death) of the applicants or move into long term care.

Under a Home Reversion scheme the provider buys a share of the property in return for a lump sum. On sale of the property (on death or move into long term care) the provider receives their share of the proceeds. You may not receive a lump sum equivalent to the value of the share sold.

All Equity Release products must be “advised sales” under Financial Conduct Authority regulations. This means that a suitably qualified and authorised adviser will need to take detailed information about your situation and requirements, then consider all options (including mainstream mortgages, Retirement Interest only mortgages and other options) before making a recommendation to you.

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 homeowners 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 is 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. 

Download our Consumer Guide to Equity Release hereAlternatively, the industry-wide Working Together group has produced an informative leaflet here.