Equity release is an option for older homeowners who are looking for a way to raise cash without taking on loans.
There are two variations of equity release scheme in the UK: lifetime mortgages and reversion schemes. Both of these options allow you to stay in your own home for as long as you are able, but offer up cash based on a range of different criteria. You’ll need to decide on which route to take and the implications of your choice, so make sure you seek the necessary legal and financial advice from experts in the field.
What to look out for
Make sure the equity release scheme you embark on is provided by an Equity Release Council member. This will ensure you never owe more than the value of your home (called a negative equity guarantee). Reputable plans in the UK are regulated by the Financial Services Authority.
The minimum age to qualify for a lifetime mortgage is usually 55. This option is the most common form of equity release, and the premise of this type of scheme is that you take out a loan against your home, which provides either an income, a large sum of cash, or both. The benefits of a lifetime mortgage are that you do not need to make any monthly repayments on the cash you take out of your home – unless you want to pay the interest as you go. If you choose not to pay interest monthly, it will be settled when your house is eventually sold.
Your property will remain under your ownership and your debt will be repaid only when you pass away or leave and sell your home to go into care.
Drawdown is a version of this method of equity release, and the benefits are than you don’t release a lump sum at the beginning of the process, which means you generally pay less interest overall. A sum of money is placed in a “pot”, and you take cash from this when you require it. You only pay interest on the money once it is taken from the pot. Essentially, reducing interest means there is more for your beneficiaries once you pass on.
Home reversion schemes
Normally you will need to be over the age of 60 to qualify for a home reversion scheme. These are a lesser used equity release scheme, which allow you to sell your home in full or in part, but to continue to live there. You do not own the property, but rent it for as long as you need. Upon your death, or when you move into a care home and your home is sold, you, or your beneficiaries, will receive the proportion of the property’s value.
What amount of cash can you borrow?
How much you can release through one of these schemes depends on your age and what your property is worth. Lifetime mortgages will allow you to release a maximum of half the property’s value, while with a reversion plan you will be able to access up to 100 percent. Younger borrowers typically receive less than older borrowers.
By releasing some of the value of your property you can gain access to money without having to sell your home. This can be a viable option for older homeowners, whether you are looking for a way to add to your monthly income or release cash for long-term care or for home improvements.
If you are a homeowner and are looking for a way to boost the cash you have available, exploring equity release could be extremely worthwhile.
Kate Fisher is a writer for financial experts Retirement Experience, they can help you release equity from your home and enjoy retirement.