What Is Equity Release? A Complete Guide

Within the UK, releasing equity is becoming a popular way for those above the age of fifty-five to release cash. However, even though it is a well spoken about topic, there is some confusion still around Equity Release. In this article, it will consider what equity release and everything that you need to know about it.

What actually is Equity Release?

You may have heard about it through the news, but what does it entail?

To break it down, it basically allows you to gain access to cash that may be tied up within your property. To qualify to get admission to the money, you must be above the age of fifty-five. Depending on the type of Equity Release you go for, you can decide to proceed entry to the money in either small lumps or in one payment or even a combination of both!

The Two Types of Equity Release

There are two different routes a customer could take to gaining equity release

  • Lifetime Mortgage:

In short, this is a type of mortgage a homeowner can secure on their main residential property whilst retaining ownership. This helps to keep some of the value of your property for when any family members inherit your house in future years. On a lifetime mortgage, the customer can decide whether to make repayments or let the interest roll-up. Once the person passes who is the owner of this mortgage or goes into full-time care, the accrued interest and loan amount will be paid back

  • Home Reversion:

This basically allows a homeowner to sell parts or the full amount of their property in return for monthly payments or a lump sum. If you choose this method, you still are able to live in your property rent free until you die; However, you will have to insure and maintain the building yourself. There are ways in which you can ring-fence a percentage of a property later for those who will inherit your property. No matter the increase and decrease in your property’s value, the percentage of cash you retain will stay the same unless you decide to take out another equity release. When the plan finishes, the property will be sold. The money from the sale will be shared according to the ownership of remaining portions to the property.

Why is Equity Release so popular currently?

In the first quarter of 2019, according to statistics from the Equity Release Council, around £936 million was accessed in the UK.  From the final quarter in 2018, this is an increase of 8%.

Around 20,400 customers at the start of 2019 accessed their equity release.

Even though it sounds very popular, there are advantages and disadvantages to having an equity release.

 

Advantages

  • You will have the money to do whatever you desire. Whether it be a holiday of a lifetime or helping to fund a University degree.
  • You won’t have to move out! It is seen as the alternative to downsizing from a property.
  • Generally, you don’t have to repay until you go into long term care. So, there is no monthly outgoings.

Disadvantages

  • Using an equity release may mean your family receive  a much smaller inheritance. The provider will need to be repaid, which could therefore impact your family once you pass.
  • The longer a customer borrows, the longer interest can build up. This may leave the customer owing more money.
  • When house prices rise, customers will not benefit from this.

 

How do I know if Equity Release is for me?

To understand whether equity release may be for you, there are a few components worth considering before you take the plunge.

Would it equity release work with your:

  1. Future plans
  2. Age
  3. Current income
  4. With how much money you would like to release

Equity Release is ever so tempting as it is a genuine cash boost. However, there needs to be considerations into the four components above.

There are a few companies that are trusted and well established that you can talk to about whether to use Equity Release. One of the most well-known companies is Stepchange.

 

Jess Mitchell

I started writing for PPO back in August 2019. I particularly enjoy writing about new housing developments and upcoming property events.

About Sophia 68 Articles
I started writing for PPO back in August 2019. I particularly enjoy writing about new housing developments and upcoming property events.

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