Equity release is a means of retaining use of your house or other object which has capital value, while also obtaining a steady stream of income, using the value of the house.
Types of arrangements
Lifetime mortgage – A loan secured on the borrower’s home (a mortgage) is made to generate an income. Interest payments are added to the capital throughout the term of the loan, which is then repaid by selling the property when the borrower(s) die or move out (perhaps into a care home). The borrower retains legal title to the home whilst living in it, and also retains the responsibilities and costs of ownership.
Interest only – A mortgage is made, on which the capital is repaid on death. Interest payments are paid out of the borrowers’ income whilst they remain in the property.
Home reversion – The borrowers sell all or part of their home to a third party, normally a reversion company or individual. This means all or part of their home belongs to somebody else. In return, the borrowers receive a regular income or cash lump sum (or both) and they continue to live in their home for as long as they wish.
Home Income Plan – A lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender, which is often an insurance company.
Independent Financial Advisers deal with mortgage lenders on a daily basis and have access to the most comprehensive and up to date mortgage products, so they can explain it all to you in detail, including all the small print.
Advantages of equity release
- It can provide a lump-sum of tax-free cash or a steady income (annuity), which can be index-linked, for the rest of your life.
- It can reduce the amount of inheritance tax paid by your estate.
- The No Negative Equity Guarantee (NNEG) protects the borrower in the event of a downturn in the housing market.
- If interest rates fall, borrowers are free to refinance their mortgages at a lower cost with other providers.
Disadvantages of equity release
- It may decrease the amount of money your family will inherit upon your death – assuming the value of the property grows at a slower pace than the interest rate on the mortgage.
- It may reduce the amount that you can bequeath to charity.
- In the UK, it may impact any means tested benefits that the borrower may be entitled to
The UK equity release market is now fully regulated. Both lifetime mortgages and home reversion plans now fall under the remit of the Financial Conduct Authority (FCA).
EQUITY RELEASE MAY REQUIRE A LIFETIME MORTGAGE OR A HOME REVERSION PLAN. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.
FOR ESTABLISHING YOUR NEEDS, UNDERTAKING RESEARCH AND MAKING A RECOMMENDATION, WE WILL NOT CHARGE A FEE. IF YOU CHOOSE TO PROCEED WITH OUR RECOMMENDATION AND THE APPLICATION FOR EQUITY RELEASE GOES AHEAD WE WILL CHARGE A FEE OF £295. WE MAY ALSO BE PAID A FEE FROM THE COMPANY THAT LENDS YOU MONEY OR BUYS YOUR HOME. THIS FEE HOWEVER WILL BE DISCUSSED AT OUT FIRST MEETING.