We have a great deal of experience in dealing with all the mainstream Equity Release lenders.
For the older client wanting to release equity from the value of their home, we offer a solicitor service which aims to make the transaction as streamlined and simple as possible. We understand that older people can find legal matters daunting and our promise is that our clients will receive a personal solicitor service which gives them ready access to any support needed at all stages of the process.
- Personal solicitor attendance
- Clarification of the various schemes available
- Simple explanation by a solicitor of legal documents
- Solicitor dealing direct with lenders for you
- Solicitor advice on long-term implications
Age Concern recommends that anyone considering Equity Release should take independent solicitor advice and our solicitor service is specifically designed to fill this need.
Equity Release plans – an overview
Equity release plans are a way of releasing cash, whether to buy a new car, to pay for a holiday or home improvements, or simply to make daily life more comfortable. These schemes allow you to borrow money against the value of your home, with the debt being repaid from the sale proceeds after your death.
How Equity Release Plans Work
While there are a range of different equity release schemes offering lump sums and/or regular income, they all work on the same principle: they lend you a part of your home’s value in return for a share of the proceeds when you die.
In most cases you will need to be at least 60 years old, have no outstanding mortgage (or you will need to use the equity release money to pay off the existing loan), and own a property in reasonable condition.
Equity release plans can be complicated products and are a major step for many people. Good solicitor advice is therefore key.
Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, both recommend getting independent financial advice before proceeding.
An Independent Financial Adviser (IFA) will look at your overall finances to see if equity release is really the best option for you, help find the right type of scheme – bearing in mind that in some cases you could risk losing state benefits and may have to pay extra tax. We are happy to recommend an IFA for you if you do not already have one.
Key Features of Equity release Schemes
- They can give a lump sum, a regular income or both.
- Money released from the value of your principle residence is free of tax, although if the cash is then invested there may be tax to pay on any income or growth.
- You don’t have to move house or sell your home to unlock equity. With reputable equity release schemes there is a guarantee that you will be able to continue to live in and enjoy your home until you die – and in many cases still be able to leave something of the property’s value to your family.
- If you don’t have children or family to leave your property to, then equity release might seem a particularly attractive option.
- They can also be a way of cutting inheritance tax bills as your estate for inheritance tax will include the net value of your home.
- The value of many properties means that IHT is no longer something only the rich have to pay. Equity release plans are a perfectly legal way of mitigating inheritance tax. They could be used, for example, to give a child or grandchild the deposit to buy their own property.
- They can also be used to pay for care bills without having to sell up at what can be a traumatic enough time.
Equity release will not suit everyone. It is always worth considering whether funds could be raised affordably from other sources before going down this route.
Types of Equity Release schemes.
The main equity release schemes are:
This is now the most common equity release scheme.
The equity release lender gives you a lump sum or monthly income (or both). You pay nothing – the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid to the equity release lender out of the proceeds from the sale of the property after you die.
How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow from the equity release lender. Generally, you will not be advanced more than 50% of the value of the property by the equity release lender.
Home reversion schemes
No longer very common.
You sell your home or a share of it to a equity release company for a lump sum or in return for a monthly income (or a combination of both).
You become a tenant, with the right to continue living in your home rent-free (or for a nominal rent) for the rest of your life.
When the property is sold – usually when you die – the equity release company gets its payout. If, for example, you sold 50% of your property to the equity release company, it gets 50% of the proceeds.
The equity release company will also only pay you a percentage of the current market value for the share of your property it buys. This is because you get to carry on living in the property until you die, and the equity release company may have to wait years for its return.
If you sell all of your property to the equity release company, for example, you will typically get between 30% and 50% of its current value. It will rarely be more than 60%. The actual figure will depend on your age (and your partner’s). Older people will get more, and men get more than women – because of differences in how long they are expected to live.
You borrow a lump sum secured against the value of your home. You pay interest each month, but you have a lump sum to spend as you wish. The capital is eventually repaid out of the sale proceeds.
Home income plans
These used to be the most popular type of equity release plans but are now less frequent because of their complication. You take out a mortgage against your home and use the money to buy an annuity which guarantees you an income for life. Mortgage payments are deducted from this monthly income, although the original capital is only repaid from the sale proceeds, normally after you die.
While equity release plans can be a good way of cutting inheritance tax bills, they will also reduce what your family will inherit.
While it should ultimately be your choice whether to sign up to an equity release scheme, it is probably a good idea to discuss it with close family members and/or anyone who might have expected to inherit your home. If the property has been a family home for a long time, bear in mind that your children or other relatives may also have an emotional attachment to it. Children or other relatives may occasionally be able to help you out financially instead of you taking out an equity release plan. They could then inherit the whole property.
If you receive means-tested state benefits, these could be reduced or lost altogether after equity release – which in turn could mean having to pay more for things like dental treatment and glasses. Check the rules before you take out an equity release plan.
How to avoid equity release risk
Look for equity release plans carrying the SHIP logo (for Safe Home Income Plans). SHIP is an equity release industry body set up to promote safe equity release schemes. Equity release companies who are members provide a number of guarantees, including: you will have the right to live in your property for life; the freedom to move to an alternative property without penalties; and that you will never owe more than the value of your home.
If the equity release scheme’s income comes from an annuity, you’ll get a better rate the older you are.
If you are just retired, it may be worth waiting a few years before signing up to an equity release scheme in order to get a better deal.
Equally if you are very old or in poor health you should think carefully about equity release schemes paying monthly incomes – you may not live long enough to get a decent return.
The equity release market is becoming more competitive. But interest rates on mortgage-based schemes, for example, are still noticeably higher than those on ordinary mortgages. Most equity release plans also involve paying valuation and solicitors fees, although these may be refunded assuming you go ahead. You remain responsible for repairing and insuring your home, and will still have to pay the Council Tax. Equity release companies will expect you to maintain your home to a reasonable standard to protect their investment.
Can you move or sell up?
You may want to sell your house at a later date and move somewhere smaller or more suitable for your needs, or you may want to sell up completely to move into rented sheltered housing or into a care home. You should check whether any equity release plan you are considering allows you to transfer the equity release plan to a new property or whether there is a penalty if you end the equity release scheme before death.