Equity Release is becoming an increasingly popular method of raising finance in later life. In 2018 alone a record-breaking £3.94 billion worth of equity was released from property in the UK.
As growing numbers of people explore this option in retirement, it is important that they are well-equipped to make an informed decision about whether equity release is right for them compared with other alternatives. You should seek advice from an Independent Financial Adviser to understand all options available to you based on your individual circumstances.
Here are some of the fundamental factors to consider:
What is Equity Release?
Equity Release is a loan secured against your property. It allows you to borrow cash that is tied up in the value of your home without needing to sell or downsize to access the funds. Typically, it is not a repayment loan, however with some plans you have the option to make repayments if you wish. Generally, the loan amount plus interest will be repaid either when you decide to sell the property, when you move into long term care or when you die.
Who is eligible for Equity Release?
To release cash tied up in your home you need to be aged 55 or over and own a property worth at least £70,000. If you apply for equity release as a couple, the youngest applicant must be at aged 55 or above. Although, bear in mind that the minimum age, property value and other eligibility criteria vary from one provider to another.
How much can you release?
The amount you can release depends on your age, the value of your property and your health and lifestyle. Generally, the older you are and the more your property is worth, the more you can release. Some providers take health and lifestyle choices into consideration which could enable you to release more money. It’s important to note that if you are applying as a couple the amount of equity you can release will be calculated based on the age of the youngest applicant.
You can use our Equity Release Calculator here to get an estimate of how much you could release.
Will you pay tax on the cash you release?
No, the money you release is tax-free. However, if you use the funds to make an investment you may be liable to pay tax on any interest you receive.
What can you use the money for?
You can choose to spend the money however you like. Some of the most popular reasons for releasing equity include:
- To cover care costs in later life
- To make home improvements or modifications
- To clear credit cards or loans
- To pay off an existing interest-only mortgage
- To enjoy retirement by going on holiday
- To replace an interest-only mortgage that is coming to an end
- To help children or grandchildren get onto the property ladder
- To reduce inheritance tax liability
- To stay in a property after divorce or separation
Increasingly, people are releasing cash tied up in their property to help fund day-to-day living costs in retirement.
An adviser can recommend the most suitable equity release product dependent on how you choose to spend the money. For example, if you want to guarantee an inheritance for your family then a Protected Lifetime Mortgage might be the best option for you.
To see a list of different plans for different needs click here.
Will you still own your property?
If you take out a Lifetime Mortgage plan you will remain the owner of your home and can continue to reside there for as long as you live, or until you move into permanent care. However, if you take out a Home Reversion plan you sell part or 100% of your property to the scheme provider and they become a legal owner, with this option you can also continue to live in the property until you die or move into long term care.
Will you have to stay in the same property?
No, you have the freedom to sell and move to another property without financial penalty. In most cases you can transfer the equity release plan to your new property. However, this is subject to provider criteria and so it is important to check with your adviser before taking out a plan.
Will you owe more than your property is worth?
No, all plans that are approved by the Equity Release Council are protected by the “no negative equity guarantee”. This means that you and your estate will never owe more than the property is worth when it is sold.
If your property decreases in value and is not enough to cover the loan amount, the remainder of the loan will be written off.
Is Equity Release regulated?
Yes, equity release professionals are qualified to give advice and will hold certifications such as CeRER, CER and ERMAPC. Providers are regulated by the Financial Conduct Authority and the Equity Release Council which is the trade body.
Personal Retirement Planning is a proud member of the Equity Release Council and only provides plans that have been approved by them.
There are many more questions that our clients ask based on their individual circumstances. If you would like to know more about equity release, please feel free to give us a call or email firstname.lastname@example.org. We look forward to speaking with you.