EQUITY RELEASE

Equity Release is where you retain use of your house or other objects of value. If over the age of 85, this can be done, and you can receive money as a lump sum or, in several smaller amounts, or as a combination of both.

The amount you can release will be dependent upon your age (typically the older you are the higher the level of equity that can be released) and your health.
If you need to support your pension, equity release can be a useful way to boost your bank balance or provide more regular income when you need it most.

Pensions

For homeowners aged 55 or over, equity release is an option to provide a tax-free lump sum or income (or a mix of both) by taking money out of your property. There are two types of equity release available in the UK:

  • Home reversion – selling all or part of your home
  • Lifetime mortgages – borrowing that is secured against your home

What is home reversion?

Home reversion is where you sell all or part of your home to a reversion specialist. You don’t have to leave your home – as part of the sale you’ll be given a lifetime lease that permits you to stay either until you die or you enter long-term residential care.

When that happens your house will be sold, and either you or your estate will receive the proceeds from the sale minus the percentage you sold to the reversion company. So if you sell 35% of your home under reversion, when the house is sold you or your estate will receive 65% of the sale while 35% will go to the reversion company.

With home reversion you normally need to be aged 65 or over, so if you’re younger it may be better to consider a lifetime mortgage. It’s also important to note that you won’t be paid market value for the share of your home you sell, and it may be significantly less than the full value.

You can sell your entire house if you wish, but this does mean you won’t leave any part of your property in your estate.

What is a lifetime mortgage?

A lifetime mortgage is a loan you take out against your property’s equity. This will only be repaid once you die or enter long term residential care. There are different types of lifetime mortgage which can either give you a lump sum or can be taken as drawdown (an initial sum, followed by a cash pot that you can draw on as and when you need it).

The interest from your loan is usually deferred too. You don’t need to make any repayment on your lifetime mortgage while you’re alive. The drawback to this is that it’s a rolling interest, compounding year on year. The longer you live, the more you’ll need to repay from your estate and you could end up owing more than you originally borrowed.

Whether you choose home reversion or a lifetime mortgage, both are low risk. You’re protected from going into negative equity so won’t be in financial trouble.

Want advice on the best equity release option for you?

If you want to receive further information on releasing the equity in your home, speak to our partner Independent Financial Advisers (IFAs) for guidance on the best option for you. They are specialists in this area and members of the Equity Release Council, meaning that they are best placed to provide you with this advice. Find out more about the Equity Release Council here. The initial discussions are free and without obligation, so you can look forward to impartial guidance on whether equity release is suitable for you. Contact us here to find out more.

DIY

 

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