With nearly half of the homes owned in the UK owned outright, it’s not a surprise some people are thinking of releasing some of the equity in their home to help support their current lifestyle.
But before you contact anyone about releasing equity in your home, read our information and guide below to help you understand the pros/cons and costs of releasing equity.
If there is one thing you should do when considering Equity Release – make sure you use a provider who is a member of the Equity Release Council
So what is equity release?
This is where you ‘sell’ some of your property or organise a ‘Lifetime Mortgage with a first charge to a company who gives you a lump sum.
What do you need to be eligible for Equity Release?
You either own your home outright or have a small mortgage Must be your primary residence and in the UK. Typically you have to be over 55, and 60 plus is the norm. The younger you are the less money you will be able to obtain.
Are there different schemes?
Yes there are two main ways to release money from your home:-
1. Lifetime mortgages
2. Home reversions
A lifetime mortgage for equity release
This is effectively a loan which you pay back when you die or go into permanent Long Term Care. The property is sold (might be once you have passed away). Your home remains yours as long as you can pay back the money You have the right to remain in your property and if you have taken out equity release with a member of the Equity Release Council you will have a ‘no negative equity guarantee’. This means the interest rolls up and you will never owe the provider more than the property is worth.
You can borrow at a variable or fixed interest rate or just borrow a set amount and upfront what you will pay back. If you opt for a product from an Equity Release Council member then the interest is fixed. Be aware of some products where you can agree to pay the interest monthly, but have the option to change to roll-up the interest at any point in the future.
With a Lifetime Mortgage your property remains in your name.
Home reversion for equity release
This is where you sell all or part of your home (this is NOT sale and rent back which is illegal in the UK). Bear in mind you are still responsible for keeping the property well maintained.
With a Home Reversion, in contrast to a Lifetime Mortgage, you sell 100% of your property. You have the right to remain in your property, you no longer own it, but effectively live there as a tenant. If you sell a percentage, you still own the remaining percentage.
The older your are, the more money you can release. The company are paid back when you sell the home/die.
You MUST check the lease via an independent legal specialist which you can find via ALEP You can choose your own legal company and only sign when they have explained what the risks and benefits are of securing funds this way.
What should you do before you take out equity from your home?
Don’t try and do this directly with a company first as there are pros and cons to equity release and you need to seek independent professional, regulated financial advice.
For more advice, call 0300 500 5000 or visit a FCA regulated financial advisor
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