The key topics in this guide will help explain it all to you in a very straight forward way. In this guide,you will find
Equity release schemes are rapidly growing in prevalence in the UK and overseas – and with good reason. As more and more people are unfortunately finding they have left it too late to prepare for the cost of care, equity release is understandably becoming an increasingly popular option. The two most popular options are lifetime mortgages or home reversion plans.
When the opportunity to put aside money to pay for care in the future has passed, the range of options for investments that don’t affect quality of life and inheritance begin to narrow. Therefore equity release has become one of the most viable and attractive ways to fund care – and with good reason. Equity release schemes enable you to retain ownership of your home and in most cases continue to live there.
Some people won’t be eligible for certain types of equity release schemes – or it may not be a suitable option at all.
A home reversion plan is primarily suited to individuals over 65 looking for a method to specifically help them pay for care administered at home – either long-term or in the near future.
In essence a home reversion plan involves selling all or part of your property for a sum less than its market value. In return you’ll receive a tax-free lump sum or regular guaranteed income. Meanwhile you’ll be able to remain living at home as a tenant, completely rent-free.
Although a home reversion plan sounds attractive at first glance, there are some important aspects of this type of equity release scheme to think about.
Before you approach home reversion companies, carefully consider your future prospects and be honest with yourself and family members about how realistic it is that you will be able to remain at home for the rest of your life.
Home reversion plans tend to be inflexible in the event of a change of circumstance – and leaving the contract early would force you to buy back the share you sold at full market value. This can be tricky if your money is tied up paying for the ongoing cost of care – and also leaves you significantly out of pocket after the original sale was made below market value.
A home reversion plan is undoubtedly a high-risk option – but it can be incredibly useful for individuals who know that they are likely to remain in their own home and need to release funds early to pay for home care administration or modifications to their property to enable them to stay.
Because this option is only suitable for those who know that they can and will remain at home it can be a little restrictive – and is naturally not open to everyone.
Here is a video explaining how a home reversion plan works.
To prevent against negative equity the amount that you can get is normally between a range of 20% – 60%.
Typically, the older that you are the higher the % you may be offered. However, you never typically get more than 60% because the company providing the equity release mortgage is taking a risk that the value of your house does not fall. In addition, it does not know when it will get its money back, as they cannot sell the property until you die or move into care.
The amount that is offered is based on the following factors:
– how healthy you are
– the current value of your house.
You should also remember, that even though the mortgage company will essentially own part of the house, you could still be liable for other costs such as annual ground rent irrespective of what proportion of your home has been sold.
Choosing the best equity release scheme for your needs will depend on your personal situation and future prognosis.
For example, if you have recently been diagnosed with a long-term health condition it’s important to have a frank and realistic discussion with the medical professionals in charge of your care.
Explain that you are considering financial options to help you to pay for imminent care needs, and ask that they are honest and give a detailed explanation of the type of issues you may encounter in the future, and the level of care that is likely to be required.
– It’s a great way to access quick money to pay for later life and your care costs
– You get to stay in your home and benefit from the equity you have built up
– The money that you take out of your home is tax-free
– Its an efficient way to avoid inheritance tax. You can read more about that here.
– It helps with your estate planning as you can use part to fund your care and part you can leave as an inheritance to your loved ones.
– If you want to buy a care fees annuity, you can use the proceeds of the Home Reversion plan to pay for this.
– Due to the extra income you will have, you might find that there is an impact on the benefits you receive from the government. This is because it will impact the assessment they do to see what income and capital you have. You can read more about that here.
– A big thing is that you wont have a home to pass on as an inheritance, as it will need to be sold when you move in to a care home or die.
– Even though you will continue to live in the home, you will no longer be the sole owner of the property.
– If you decide to change your mind, there could be a financial impact to that. This is because if you decide to buy back your share of the house, you would need ti pay the full market rate, and this could be more than what you received for your share in the first place.
– Not all plans are portable. So, if you decided you wanted to sell your home and move elsewhere, you would need to get permission from the equity release provider.
– Any costs associated with the transaction, such as legal, mortgage arrangement and valuation fees will be met by the home owner.
When you take out a Plan you can choose to either have your money paid to you as a one-off lump sum or you can look to take it as an income whilst you are alive.
The benefit of taking it as a lump sum is that you will give a large sum up front. This gives you the freedom to do something nice with it or use it to modify your home to make life easier. However, there is a risk with this option, because if your money runs out and you spend it all how will you meet the costs of care later in life.
Whilst its not as lucrative as receiving a lump sum, an ongoing income does at least guarantee that you will be paid regular amounts for the rest of your life or at least until you go in to a care home. However, the risk with this is that if you died shortly after taking out your plan, a large proportion of your inheritance will be lost (but some plans do offer protection about this, so this is something you should ask about).
As you can see, there are risks with both options above. However, there is nothing to stop you looking at taking a mix of the above. Perhaps only take what you need as a lump sum and then take the rest as an income.
It is essential that you use a specialist to secure a Home Reversion scheme. They will ensure that your interests are always protected and also ensure that you dont waste thousands of pounds on a bad deal.
There are two options for you to consider.
We have created a directory of advisors that specialise in helping people find the right equity release provider. The directory has advisors listed from all over the country. You can access the equity release advisor directory here.
If you do not feel confident in choosing an advisor, you can leave your details below, and we will find an advisor for you. We do not charge for this service and it is absolutely free.
Here is a video from Martin Lewis on ‘This Morning’ explaining why you should speak to a specialist before taking on an equity release plan.
TAKE ACTION HERE – At UK Care Guide, we have compiled an independent list of equity release specialists. They will all be able to discuss and guide you on whether its the right option and also help you find an equity release provider. You can access a list of them here.
Although not impartial, home reversion companies and equity release providers can also provide clear and comprehensive information about specific products. Obtaining professional advice is however a savvy move – and although you’ll have to pay a fee for their guidance, it can be invaluable and save costly mistakes or difficult situations further down the line. We have seen plenty of examples of people not taking advice and really paying the price for it.
For more expert insights and professional assistance with the financial aspects of care, take a look at our related articles here. You may also like to browse our directory of financial professionals who specialise in later life and care provision.
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.