“Is equity release a good idea?” That’s the question! Unfortunately the answer is not so straightforward. For some, equity release can be a good idea and for others it is not. It really depends on your own personal situation.
Equity release, or Lifetime Mortgages as they are also known have become more popular as people look for ways to get hold of some extra cash. Either out of need or just to make life more enjoyable. It is not a decision that should be taken lightly, given that you are most likely dealing with your biggest asset, your home. So you should take your time and consider whether you want to take the next step and speak to a fully qualified adviser.
As the value of homes has increased more than 43 times that of inflation since the 1970s. Brits retiring now own homes worth an average £223,257, and many will have originally paid a fraction of this, leaving a healthy amount of equity. With savings scraping along on low interest rates, and an acknowledged pension shortfall – how could your home play a role in assisting your retirement and future planning?
Equity release allows you to release money secured on your home, giving you a cash sum to use however you like; boosting retirement income, paying for that luxury holiday or home improvements to make life easier in retirement.
There are two options:
A Lifetime Mortgage is the most popular scheme. You take out a mortgage secured on your property provided it is your main residence, while retaining ownership. Interest is charged on top of the original equity you have released and that sum can be paid through repayments or as a lump sum when you die or your home is sold.
Home reversion is when you sell part of all of your home to a home reversion provider in return for a lump sum or regular payments. You continue living in the property rent free until you die but agree to maintain and insure it. At the end of the plan your property is sold and the sale proceeds are shared according to the proportions of ownership.
Will I still own my property?
This depends on the type of Equity release you take. A lifetime mortgage – Yes, until you sell it or die. The Home Reversion schemes – No, which involve selling all or part of your home to a company aren’t very common in the UK.
Are they only for people with large properties?
No; Most companies have a minimum property value but many offer equity release on properties far below the average UK house value.
What is the smallest amount I can borrow?
You can borrow from £10,000 with some lenders but different providers do have their own limits.
Will my children inherit my debt?
They won’t exactly inherit the debt but they will need to repay the debt once the house is sold after you die. All Lifetime mortgages now come with a “no negative equity guarantee” which means that you will never owe more than the value of your home.
Will Equity Release reduce my children’s Inheritance?
Yes. However much you have borrowed through Equity Release is likely to be paid back through the sale of your property after death and therefore reducing the sum of money left. A good adviser should discuss this with you and encourage you to talk to your family before you make any decisions on equity release.
Are Equity Release interest rates much higher than others?
Yes – they will be more than standard mortgages rates because they are having to wait a long time to get their money back while also taking a risk your property could fall in value. Lifetime Mortgage rates are around 6% compared to normal residential rates of around 3% – 4%.
Are there any restrictions on what I can do with the money?
No! As mentioned before you can use the money however you like. Increase income, purchase a number of things or a combination of both.
Wondering whether you’ll still be able to move into a new home if you’ve taken out an equity release plan? The answer is yes: many equity release plans guarantee you the right to move, as long as your new property is eligible.
Plans that follow the Equity Release Council’s guidelines will include the following guarantee:
“You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan”.
A survey of people that had taken out a Lifetime Mortgage found that the reasons for releasing money from the home were quite varied:
The growing trend of later life divorce is also playing a role. Couples who have invested in the family home may find that they no longer wish to live together in retirement. For them, equity release can enable them to move forward and buy separate properties.
The Moneytree Corporation Limited Registered in England number: 4350758. Registered Address: 14 Gipsy Lane, Warminster, BA12 9LR. Savvy Financial Planning is the trading name of The MoneyTree Corporation Limited which is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate taxation and trust advice. We are entered on the FCA Register No: 504571 at www.fca.gov.uk/register. The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. The value of investments and income can go down as well as up and you may not get back the full amount invested. Should you have cause to complain, and you are not satisfied with our response to your complaint, you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows: The Financial Ombudsman Service, Exchange Tower, London, E14 9SR. Tel: 0800 023 4567 or 0300 123 9123, www.financial-ombudsman.org.uk.
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