Equity release can be misinterpreted. It is one way of explaining how equity can be released from your home to fund home improvements, or to repay other commitments.
However, the usual meaning of ‘Equity Release’ is for older clients, who are living in a property and want to release equity for use during their retirement.
We will look at both of these areas and explain the options available to each category of borrower.
For later life lending, the term ‘equity release’ is essentially a selection of financial products that are there to help you convert the equity you currently have in a property into money you can use for something else.
Equity release comes in two main types: lifetime mortgages and home reversion. We explain more about these here;
This is where you borrow a portion of your home’s value (and it is also the most popular choice for people looking to release equity). The ownership of the property remains in your name/s. It’s important to remember that a lifetime mortgage is still a loan, meaning it’s secured against your home. You will be charged interest on the amount, however, unlike a usual mortgage plan where you make planned monthly repayments, there are options for this interest not to be paid – the interest can be added to the loan and repaid to the lender when you sell your home or pass away. Primarily, the lenders are looking at your age and the value of the home to determine what level of lending is available to you, as opposed to your income level. There have been many developments with these types of mortgages over recent years and they no longer have the poor reputation they had many years ago. We strongly recommend speaking to one of our advisers if you would like to explore the options available.
This is where you usually sell a percentage of or your entire property to a scheme provider. They then pay you a tax-free lump sum, which means you’ll be able to live in the property for the rest of your life, rent-free. Because of this, you should bear in mind that the amount they pay you will not be the market value of your property.
Who is eligible for equity release?
The ability to release equity from your property is available to anyone who is 55 or older at the time they wish to proceed. And if you’re thinking about doing this with a partner, they also have to be 55 years of age or older. As well as this stipulation, it’s important to remember that the majority of equity release providers will request that your home has a minimum value of approximately £70,000.
If you’re yet to finish paying your mortgage off, you can still release equity. However, some of the funds you receive from the release will need to be used to pay off the remainder of your mortgage. And when you have done that, the rest of your equity is yours to use as you wish.
Before you begin this process, you also need to be aware of some other restrictions. For instance, you may also find that some equity release providers may be cautious if they regard your property to be of an unconventional build (i.e. if it has been constructed using poured concrete or its structure is a timber frame).
A drawdown facility is a flexible feature of a type of equity release plan. It allows you to ‘draw down’ funds over the remaining term of the loan, as and when you need it. Interest is only accrued on the funds as and when the funds are drawn.
How much will an equity release provider offer me?
Because of the ‘No negative equity’ guarantee (a promise made by the majority of the largest equity release providers that what is owed back will never be more than the value of their property), there is a strict limit on the amount you can borrow. For example, a borrower in their late sixties would typically be able to release no more than 35 per cent of their property’s value. To give you some figures as a guide, if a borrower’s property was worth £250,000, the maximum amount they would be able to release would be approximately £80,000. Each provider is different and the different schemes available now may give a client more options to raise a higher amount if required.
Please do contact us for advice in relation to options that are available for ‘later life lending’
We do not charge fees for any advice or recommendation and would be happy to explain the vast improvement to products and services available in this area of the mortgage market.
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