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Equity Release

What is a lifetime mortgage?

A lifetime mortgage is a secured loan against your property which, unlike a standard mortgage, does not need to be repaid until either, you move into long term residential care, or pass away. They are also usually fixed for the full term of the loan, therefore no need to change rates after a fixed amount of years.

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You remain the legal owner of the property and will continue to live in the property as long as you want.​

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Lifetime mortgages are provided by specialist lifetime mortgage lenders that offer different products. An equity release advisor will be able to help source the product that is most suitable for your circumstances and needs. 

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Advantages

  • You retain ownership of the property

  • The cash released can be used however you want

  • Many of the current market products require no payments to be made

  • You are guaranteed lifetime occupancy

  • Depending on how much equity is left in the property when the borrower moves, dies, or goes into residential care, the leftover equity will be given to the beneficiaries.

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Disadvantages

  • The amount of equity raised will be a low proportion compared to the property’s value.

  • The debt rolled-up may quickly diminish the equity 

  • The younger the borrower, the higher the amount of potential rolled-up interest (also a reason why the amount of equity raised will be a low percentage of the value, to leave room for interest)

  • You have no control over the rolled-up interest

  • Moving home will be subject to the lenders criteria and approval.

  • Increases in capital or income from Lifetime Mortgages may impact any means tested benefits.

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*Equity Release mortgages reduce the value of your estate and may effect any means-tested benefits you may be eligible for. A lifetime mortgage, which is a secured against your home, is the most popular form of equity release and you will still own your home. Think carefully before releasing equity and make sure it is right for you. To understand the features and risks of this product, please ask for a personal illustration.

What is a home reversion plan?

With a home reversion plan you sell all or part of your home to the home reversion company in return for a tax-free lump sum, or a regular income, or both.

 

You stay in your home rent free until you either pass away or move into permanent care.  Once this happens your home is eventually sold, and the reversion company gets their share of the proceeds. The share is based on the percentage they bought, not the amount they paid.

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While a Home Reversion Plan can provide you with a tax-free lump sum it has some disadvantages which may outweigh the advantages and may not be the best options for many clients.

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Advantages

  • You can continue to live in the property until you die or move into permanent care.

  • You will not build up any debt.

  • You will know from the outset what percentage of the property will be left to your beneficiaries (heirs).

  • There are no monthly repayments

  • Depending on the percentage of property you have sold to the reversion company, and the property growth while you are still living in the property, you may be able to take out additional funds in the future.

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Disadvantages

  • You sell between 25%- 100% of your property to the reversion company which reduces the value of your estate, and your beneficiaries will not receive as much.

  • If you die soon after starting the plan, you would have received a below market value price and your beneficiaries will not receive as much as if they sold the property on the open market.  This plan only works well as a long-term plan.

  • It is slower to arrange than other forms of finance

  • There is a potential impact on means tested benefits if you take a lump sum payment.

  • Your beneficiaries can not choose to keep your property after your death.  

*We do not advise on this but we are happy to recommend you to a third party Home Reversion specialist if you think this is an option you want to consider

What is Equity Release?

Equity release can allow you to unlock the value in your home.

 

Whether you are looking to top up your income in retirement, pay off an existing mortgage or simply enjoy your retirement to the fullest, equity release can offer flexible solutions.

 

Depending on the type of product you can access money in the following ways:

  • One cash lump sum

  • Small, ongoing amounts

  • A combination of the two.

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There are two main types of equity release. These are a lifetime mortgage or a home reversion plan.

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