I’m sure you will agree that when it comes to better understanding how equity release works, it can get confusing. This is why we are here to help you!
The key topics in this guide will help explain it all to you in a very straightforward way. In this guide, you will find:
To put it in to simple terms, equity release is a way of taking a lump sum, tax-free from the value of your home.
You can do this in a number of different ways but in essence you take out a policy that allows you to take (or release) equity (ie cash) tied up in the value of your property.
You can apply for this if you are over 55 and importantly you do not need to have paid your mortgage off to do this.
Generally, when it comes to taking the cash, you can do it as a single large lump sum, split into smaller amounts or a combination of the two.
Here is a short video that explains how it works.
When stripped back to basics, equity release plans work by enabling you to release funds (known as ‘equity’) currently tied up in property assets.
This makes it an attractive choice for over 55s who wish to use the money to enjoy retirement, or set some aside for imminent or future care needs.
It works by lending homeowners a lump sum or regular income (usually on a monthly basis), in return for a portion of their property. Money is lent against a value that amounts to less than the market price of your property, and interest is accrued on the amount you borrow.
Whilst the benefits are clear, they won’t be suitable for everyone. They are however a fantastic option for couples and individuals without savings or additional assets, who would like to use money currently tied up in their property to pay for care.
There are many reasons as to how you can use the money you get. Typical reasons that we see are:
– Make home improvements
– Go on a holiday of a lifetime
– Top up your pension
– Gift some money to family members, particularly your children
If you are wondering how much you could get as a lump sum, tax-free, from your home, click the equity release calculator below. It will be able to give you an estimate of what you will get.
As is the case with all financial investments, equity release plans have a variety of pros and cons attached to them.
As a whole, there are a number of pros and cons of equity release – but you’ll find a range of products each with their own individual characteristics.
For this reason it’s incredibly important to research your options thoroughly, and identify where products may differ between providers and even based on your individual position financially and personally.
As this is often such an important decision it is important that you do your research and make a list of all your equity release pros and cons.
Here is a video that looks at the advantages and disadvantages of equity release schemes.
1. Retain Ownership – You’ll retain ownership of your property for the time being – or at least a portion of it. This enables you to stay in your own home indefinitely – and leaves open a possibility that you could retain some equity from your home at a later stage.
2. Spend YOUR money – You are free to choose how to spend the money released from your property. For example you can use it to pay for care, re-invest it, gift cash sums to relatives or make necessary improvements at home.
3. Negative Equity Guarantees – Negative equity guarantees are offered by several providers – this protects you from paying more than you borrowed should your property’s value drop significantly.
4. Gift as inheritance – Some providers also allow you to protect a portion of your property’s value separately to gift as inheritance. It may also be possible to make partial repayments early should your situation change.
1. Reduced inheritance – A natural consequence of taking out an equity release plan is reduced inheritance – as you’ll no longer be able to leave your property as a gift. However for those considering later life finance or care funding without much time to spare this may be less of a concern.
2. Valuation less than market value – The amount you receive against your property is often offered at a valuation less than its market price, so you could be out of pocket if your circumstances change. You may also decide it is best to sell up, although this would of course mean that you will be unable to stay living at home.
3. Impact on tax status – Enrolment in affect your tax status and entitlement to certain welfare payments and benefits. For this reason it’s worth obtaining advice to get a clearer picture of how the change will affect you financially.
4. Interest payments – Most schemes accrue interest – at fixed or variable rates. Thoroughly research providers and interest rates offer before making a decision.
5. Inflexible – They can be inflexible once they have been taken out – so if your circumstances are likely to change later down the line this may not be the best thing for you. For example, if you use up funds released and run out of money earlier than expected or have to move into a residential care home it may be difficult to work around your current solution.
Always weigh up the equity release pros and cons with your own personal situation and prognosis in mind – especially if you plan on using the funds made available to pay for care.
For complex or particularly unique situations it may be imperative to enlist support from an experienced professional who can guide and advise you based on the information you provide.
In addition to equity release specialists, you can find a list of reputable later life financial planners here in our directory.
There are three main types of equity release schemes in the UK”
We have produced some short videos below which explain how each of these schemes work.
You can read more about Lifetime Mortgages here.
You can read more about Home Reversion Schemes here.
You can read more about Drawdown Lifetime Mortgages here.
Equity release interest rates in 2019 are generally higher than standard mortgage rates.
Typically, the range of the best equity release interest rates in 2019 are between 3.5% and 7%. All the companies that offer equity release will be authorised and regulated by the Financial Conduct Authority, which will give you some confidence even if you have never heard of the provider.
As a further confidence factor all the major providers are also members of the equity release council, which is the industry body for the equity release sector in the UK.
This is a significant range of interest rates and therefore you do need to try and find the best rate for your circumstances. Also many of the best deals are not available through searching online.
Interest rates can change daily. We would recommend you call 0800 4640 806 to find out what the latest rates are. They will also have access to deals that aren’t available online.
Since the schemes are offered on a different basis than standard mortgages, they also provide additional guarantees and fallbacks such as measures to prevent paying more in the event of a negative equity situation.
As interest rates rise and fall, equity release rates are naturally influenced, and Interest rates in 2019 vary between companies.
Some companies will offer static or ‘fixed’ rates, whilst others are variable and subject to inflation.
When making a decision regarding your suitability for equity release it’s key to investigate the amount of interest you’ll be expected to pay. Browse providers and work out how much you will need to repay once the contract is terminated.
Some options enable low monthly repayments to cover interest accrued, so you will only be liable to pay back the loan itself when the contract comes to an end.
The interest rate that you will get will typically depend on the amount of loan to value (LTV) you are taking.
However, typically you would see rates starting around 3.5% going up to about 7%. As you can see, the range of lifetime mortgage rates that you can get are very wide. That is why we strongly recommend that you speak to a specialist to help you find the most competitive rate.
Here are the 5 cheapest lifetime mortgage rates available in the market today. However, the rates can change daily so you should ring the number below for the most up to date information
Provider – Hodge Lifetime – Authorised and regulated by the Financial Conduct Authority
Maximum Loan to Value – 50%
Annual interest rate (AER) – 3.45%
Amount you can borrow – £20,000 to £500,000 as a cash payment.
Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Provider – Legal & General Home Finance – Authorised and regulated by the Financial Conduct Authority
Maximum Loan to Value – 39.5%
Annual interest rate (AER) – 3.75%
Amount you can borrow – £250,000 to £2,000,000 as a cash lump sum payment.
Click here to see how much you can borrow or call 0800 4640 806 to speak to a specialist.
Provider – Legal & General Home Finance
Maximum Loan to Value – 39.5%
Annual rate (AER) – 3.77%
Amount you can borrow – £250,000 to £2,000,000 as a cash payment.
Click here to see how much you can borrow or call 0800 4640 806 to speak to a specialist.
Provider – LV – regulated by the Financial Conduct Authority
Maximum Loan to Value – 45%
Annual rate (AER) – 3.8%
Amount you can borrow – £10,000 plus as a cash lump sum payment.
Click here to see how much you can borrow or call 0800 4640 806 to speak to a specialist.
Provider – Legal & General Home Finance
Maximum Loan to Value – 42%
Annual rate (AER) – 3.83%
Amount you can borrow – £10,000 to £750,000 as a cash payment.
Click here to see how much you can borrow or call 0800 4640 806 to speak to a specialist.
Here is an infographic that with the pros and cons of equity release.
Here is a video by Martin Lewis talking about how does equity release work on This Morning. He helps give an independent view as to the benefits and who it would work for.
As funding for care becomes an increasingly complex issue for individuals and their families, it’s never been more important to weigh up and explore the range of options available.
Sometimes the sheer amount of choices feels overwhelming – and when money is tied up or difficult to access this usually adds to the stress and frustration of the situation.
Equity release is becoming an increasingly popular choice for individuals and couples planning for later life – especially those considering future care needs.
FLEXIBILITY – It is an attractive option for couples and individuals considering how to fund care in the future or in the short-term because it is flexible and requires little disruption or upheaval.
REMAIN AT HOME – An equity release plan enables the homeowner or homeowners to remain at home, enjoying the same quality of life, without compromising in the short-term.
INSTANT ACCESS TO MONEY – It provides instant access to money, which you are free to spend however you like.
This is an attractive prospect for individuals needing care who wish to remain at home in the long-term, as it enables them to remain where they are whilst providing ample funds to pay for care at home in addition to necessary modifications or maintenance.
It may also be useful for couples in the event of one person needing residential care – as one spouse or partner can remain at home whilst the other can enjoy the quality and level of care they require.
If traditional equity release schemes aren’t an option for you, or don’t offer you the best deal, you may consider remortgaging to take out equity from your property. This is an option to look at when looking at paying for care.
If you are looking to remortgage to release equity in your home then this involves taking out a new, larger mortgage to cover the remaining balance on your property and release a fixed sum for you to use however you wish.
Remortgaging can be complex and risky, and should be conducted under the guidance of a financial professional who can act with your best interests at heart.
We often get asked if it is possible to get equity release if you are under 55.
However, unfortunately, it’s not possible to apply for it if you are under 55.
Traditionally they were only an option for individuals over the age of 65 – however in recent years policies have become increasingly flexible.
It’s now possible to apply for equity release with selected providers from the age of 55 upwards.
As well as the video above where Martin Lewis talks about why you should speak to an advisor before taking out an equity release scheme, we recommend you watch this really useful video from the government’s Money Advice Service where individual’s talk about the benefits of taking independent financial advice.
More information can be found here on the UK Care Guide website, where we specialise in supporting individuals requiring care and their families as they explore their financial options.
You can also find impartial guidance and advice on charity websites such as Age UK and Dementia UK.
If you are unsure about you should do because you feel you don’t have sufficient information regarding your health and personal situation, it’s important to ask for support from a medical professional or social worker.
They will be able to give you an accurate picture of your future prospects, which will in turn enable you to make a more sound financial decision that prepares you and provides for your future.
