The amount of people in the UK opting for equity release has increased substantially over the last few years but, understandably, there are still many questions surrounding it. You may have heard of equity release, but do you know what it is and when you might be eligible for it? In today’s blog, we’ll address these questions and also some common myths that we come across about releasing equity on your home…
What is Equity Release?
Equity release allows individuals aged 55 and over to release tax-free money from a property they own and live in. This can be supplied as a cash lump sum or you have the option to draw funds as and when required. There are various ways of releasing equity, including Lifetime Mortgages and retirement interest-only mortgages.
This cash released from your home can be used however you like, which is why for many it’s an attractive option. It could be used to boost your retirement income, pay for holidays or be saved for your children or grandchildren to use in the future, amongst anything else.
How does it work?
Equity release products generally are split into two types:
Lifetime Mortgages:
Lifetime mortgages are available to those aged 55 and above, and work by you being able to borrow some of your home’s value at fixed/capped interest rates. Lifetime mortgages are different from standard mortgages, so it’s important to know the ins and outs of them before trying to get one.
Home Reversion Plans:
For this plan, you need to be over 65, and home reversion plans mean that the provider pays you a tax-free lump sum in exchange for a portion of your home at below market value. You are then permitted to stay in the property rent-free until you pass away. When the property is sold, the earnings are split based on the percentages both you and the lender own. Therefore, if the property value increases, so does the amount the lender will get.
Common Equity Release Myths
1. “I’ll have to stay in the same property for my whole life”
With most lifetime mortgages, the provider will offer you the option to transfer the lifetime mortgage to a new property if it meets the lender’s criteria.
2. “I won’t be able to leave the property as inheritance”
Lifetime mortgages are designed to be repaid by selling the property after you move (either into long-term care or after you pass away). Once this has been done, any money left over can be paid to your beneficiaries.
3. “Equity release is unsafe”
Equity release has, in the past, received some bad press. However, all lifetime mortgages are now regulated by the FCA. As well as this, the Equity Release Council was established in 2012 to provide consumer protection specifically for this market. Here at Greenfields, we are a member of the Equity Release Council, meaning we only recommend plans that adhere to this code of conduct, to ensure your financial security. All Equity Release Council plans carry a ‘no negative equity’ guarantee which means you will never owe more than the value of your home.
4. “I’ll leave debt to my family”
If all your provider’s terms and conditions are met, no debt will be left to your estate. You should never owe more than the value of your home once sold.
All equity release providers must adhere to the Equity Release Council’s code of conduct, which includes a “no negative equity guarantee”. This means you will never owe more than your home is worth once sold, even if this is less than the amount owed.
5. “Equity can’t be released if I have an outstanding mortgage on my home”
You can still release equity from your home, providing the existing mortgage is paid off using any released funds, leaving any additional capital raised to be spent however you wish.
If you’re looking for more information on equity release or want to know more about your options or how it works, you can book a free initial meeting with one of our mortgage and equity experts today. Just give us a call on 01258 857101, or use our contact form by clicking here.