Equity Release - How It Works and Things to Consider
More and more people decide to release equity from the value of their homes. Equity release schemes allow older homeowners to release cash from the value built up in their property without having to sell or move out. However, you should carefully consider all your options with a specialist adviser and independent solicitor before making a decision.
What types of equity release plans are there?
- Lifetime mortgage: You borrow money against the value of your home, which usually does not have to be paid back until you die or move into long-term care
- Home revision scheme: You get money by selling a share of your home to a private company. You can live there until you die or move into long-term care.
Who can get equity release?
There are certain conditions that must be met before taking on any of the two equity release plans. The conditions are:
- You and your partner are above a certain age. The age differs for the two plans; 55 for a lifetime mortgage and 60 for home revision.
- Any existing mortgage or loan must be paid off immediately with money from the equity release plan.
- Your home must be in the UK, your main residence, above a certain value and in reasonable condition.
How much can you borrow?
How much money you can release depends on the value of the property and your age. If you have a partner, the loan will be based on the age of the younger. For a lifetime mortgage, the amount is usually no more than 60% of the property´s value. If you choose a home revision scheme, you can sell up to 100% of your interest in the property. All lenders have a ´no negative equity guarantee´, meaning that you can never take out more than the value of your property when it is sold.
Things to consider – lifetime mortgage
- You usually do not have to make any repayments while you´re alive
- You do not have to pay interests while alive, but unpaid interest will be added to the loan meaning that your debt can increase quickly over time
- The amount you can borrow usually increases according to your age when taking out the lifetime mortgage
- You are allowed to move to another property, but this must be agreed by your lender
Things to consider – home revision plans
- Your lender will not give you anything near the true market value of your property compared to selling it on the open market
- You will normally get between 20% and 60% of the market value
Some final thoughts
- Equity release can be more expensive than an ordinary mortgage as the interest rate is higher, it will be significantly more expensive if you decide not to make any repayments until you die or move into long-term care
- Some people may want to consider downsizing or renting out a room for extra income before committing to equity release
- The money you receive might affect your entitlement to state benefits
- It is important that you consider how equity release will affect the inheritance that will be passed on to your family (roll-up plan for interest rates, home revision plan value versus actual market value)
- Expensive early repayment charges may occur if you change your mind
Equity release may be a good option for you, but do make sure you look at all your options before making a decision and consider talking with your family about it.
If you decide that an equity release is a good option for you then you will need a solicitor to act on your behalf. In most cases, the Equity Release Provider will require you to have independent legal advice, to ensure you understand the full implications of deciding to proceed. You can provide our details to the Equity Release Provider (once you have been approved for the scheme) who will send us all the paperwork required to get things started.
Churchers Solicitors has extensive experience in this area with a dedicated team to help you every step of the way. Some of the documentation can seem daunting to start with, but our experienced team will easily guide you through it.
If you require assistance with equity release, please contact Gemma or someone from her team on 023 9282 0747.