My name is Neil Reynolds of www.Reynolds-Financial.co.uk and I have been involved in financial advising for 15 years. Recently though, for the last few years, I have specialised in Equity Release.
Equity Release is a way for homeowners over the age of 55 to release the equity from their main residence. There are other options available for buy to let properties and holiday homes, however those options will be covered in another article.
I’ve written this article to help explain exactly what Equity Release is, along with the processes and timescales involved.
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Different Types of Equity Release
Equity Release as a product generally consists of either a Home Reversion Scheme or the more commonly used Lifetime Mortgage. A home reversion scheme consists of selling part or all of your home for a specified sum based on the age of the youngest applicant. You would then be granted a lifelong lease allowing you to remain in your own home. Most people however do not like the thought of selling their home hence this option accounts for less than 1% of the whole Equity Release industry.
The more favourable way of utilising Equity Release is by way of a Lifetime Mortgage. This is similar to a residential mortgage and is a first charge registered against your property.
The main difference is that you have no requirement to make any payments. The amount borrowed plus interest rolls up and is payable upon death or long-term care.
A Lifetime Mortgage gives you a few different ways of releasing your equity.
- Lump Sum – This is a one-off amount released
- Drawdown Mortgage – This is an initial amount plus an amount left in reserve to access in the future. With this option interest is only charged on the amount you take and utilise.
There is a minimum initial release of £10,000 and a minimum property valuation of £70,000. Most of the plans have a fixed interest rate for life and allow ad hoc payments to be made if you so choose.
One thing to bear in mind is that any charges on the property, such as a current mortgage, will need to be cleared using the Equity Release.
The providers also include certain benefits as requested by the Equity Release Council such as optional payments, inheritance protection, the option to port to another property if you move. This is why it is essential to speak to a fully qualified adviser in order to discuss all the options available to you.
Some Uses for Equity Release
The funds that you release can be used for any legal reason. As mentioned above, if there is currently a mortgage already registered against the property then this will need to be cleared using the funds. Your solicitor will arrange for this to cleared at completion.
Other uses can be for home improvements, gifting to family, topping up your pension or holiday of a lifetime to name just a few.
Remember, with a drawdown option, you can access the reserve as and when required.
Some of the Guarantees
Under the Equity Release Council’s standards some of the guarantees are compulsory.
A no negative equity guarantee. This means no matter how much the interest rolls up the mortgage will never have a balance bigger than the property value. It also means there will never be a debt left to your beneficiaries/estate.
Independent Legal Advice – During the process your solicitor will talk you through the terms and conditions of the Lifetime Mortgage to make sure you fully understand before you commit.
You have the right to remain in your property until death or long-term care.
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.
Advice has to be provided by a fully qualified adviser registered with the FCA.
Points to Consider
Although there are many positives to an Equity Release Lifetime Mortgage there are also a few points to keep in mind.
Releasing the funds now will mean there is less of an inheritance to leave your beneficiaries. The paperwork you will be provided with will show you how much the initial advance will roll up over the years.
If you are currently in receipt of means tested benefits, then the Equity Release may affect them. This is where you will need to speak to your adviser. In this instance a drawdown mortgage may be more suitable.
Costs involved are generally a broker fee and solicitors costs. With some products a lender may also charge an application fee. Your adviser should discuss these before you agree to commit. In most cases these fees can be taken at completion.
Hopefully this has given you a bit of an insight into Equity Release however please feel free to contact me on 01633 838097 or visit http://www.reynolds-financial.co.uk/equity-release-lifetime-mortgages
Neil Reynolds CeMAP, CeFA, CeRER
Independent Equity Release Adviser offering a no obligation initial appointment
Twitter – https://twitter.com/ReynoldsFinLtd
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I began writing for Property Press Online in October 2019. Particular areas of interest are housing market news and new developments in the market.