Equity release schemes allow borrowers over 55 to release cash from their homes, but these schemes aren’t for everyone and have their risks.
The two most common equity release products are lifetime mortgages and home reversions.
We offer lifetime mortgages, as opposed to home reversions, as we feel that lifetime mortgages are a safer and more beneficial product in most cases. A lifetime mortgage involves taking out a loan secured on your home which does not need to be repaid until you pass-away or go into long-term care.
This frees up some of the wealth you have tied up in your home, while also allowing you to live there.
When you pass away or move into long-term care, the home is sold and the money from the sale is used to pay off the loan. Any surplus money goes to your beneficiaries. If your estate wishes to pay off the mortgage without having to sell the property they can do so. If there is not enough money left from the sale, your beneficiaries would have to repay any extra above the value of your home from your estate.
Before you seriously consider equity release, you should be aware of how safe equity release is, the advantages and disadvantages, and how you can get the best financial advice.
“Is Equity Release Safe?”
Equity release is the safest that it has ever been. During the 80s and 90s, equity release earned a poor reputation due to misconduct and people losing their homes in complications. In the present day, however, equity release is regulated by the Financial Conduct Authority (FCA), so you cannot lose your home. As a result, equity release schemes are safer than ever before, but whether the
product is suitable for you is based on your personal circumstances, needs, and wants.
The most common concerns held by people about Equity Release are now covered off by guidelines put in place by the Equity Release Council (ERC). Mortgage lenders that are qualified by the ERC are generally a safer choice. This way, you aren’t at risk of compromising your estate or losing your home.
The Equity Release Council’s ‘no-negative equity guarantee’ ensures that you never end up owing more than the property is worth. You could incur significant debt that would be cleared when you’re no longer able to use the house. As a result, you may not be able to pass on the property inheritors.
Despite the negative press that equity release has received, the product is the safest that it has ever been, especially with the right advice.
“Why equity release?”
Equity release can generate a reliable source of income while allowing you to maintain a comfortable lifestyle in your own home, they can also provide a one-off bump to enable you to go on a dream holiday, have some home improvements or help your family get on the property ladder.
“What are the downsides to equity release?”
While not a downside as much as a matter of suitability, Equity release isn’t usually the right scheme property owners with lots of spare cash, or other investments that provide an income (such as shares and bonds). Those assets can generate adequate income, lessening the need for a loan.
Equity release can reduce your family’s inheritance. Over time, interest can build up and reduce the value left in your home to pass on to your loved ones. However, as mentioned before, the ERC’s ‘no- negative equity guarantee’ ensures that your beneficiaries will never have to owe more than the value of your property.
Over time, interest builds up on a lifetime mortgage. How and whether you pay this interest depends on what you want, many borrowers opt to add the interest to the loan. The loan will not need to be paid off until you’re no longer able to use the home. The rate of interest similarly depends on the specific product that you choose.
The money you release is tax-free, but could be subject to tax at a later date if, for example, you placed the money in a savings account.
For those over 65, state pensions aren’t affected. Means tested benefits can be affected, depending on your individual circumstances. It is therefore crucial to know what payments you are receiving from the government when you consider equity release.
Getting the best financial advice
When receiving equity release advice, we recommend that you use a firm that is qualified by the Equity Release Council. You should also check if the firm is regulated on the FCA register. A firm giving you good financial advice should never pressure you into making a decision that you do not wish to.
“Why Later Life Money?”
As a member of the Equity Release Council, we are committed to delivering the gold standard of advice to our clients. Where possible and safe, the process will be carried out face-to-face to ensure that you are happy with any agreement made. We can also offer Zoom meetings. If the proposal doesn’t proceed for any reason, you won’t have to pay any fees. We specialise in equity release and are committed to making the sector as fair as possible for clients.