What exactly is equity release?

Equity Release is defined as: ‘The use of financial arrangements that provide the owner of a property with funds derived from the value of the property while enabling them still to use it’

In other words, it’s a way of releasing some of the value locked in your property (in the form of “equity”) without having to move home or crucially, without having to repay any of the loan (interest or capital) during your lifetime*. 

Equity release can provide you with a lump sum of money, a regular income or (a popular option), the option to be able to take a smaller amount on day one and be able to “dip into” a reserve facility at a later date and whenever needed.  In this instance, interest is only applied to the money taken on day one.

Any funds released from the reserve facility later will be subject to interest from the point it’s drawn down.

Equity release is only available to over 55s and some properties may not be suitable for Equity Release lending.

Interest is compounded – it rolls up – so the amount owed can increase quite quickly.  This affects the value of your estate which can be left to your beneficiaries.  In the worst case scenario, your property will need to be sold to pay off the loan and there may be NO remaining equity in your home to leave to your loved ones. 

It is possible to protect a proportion of the equity in your home but in turn, this limits the amount of money you may be able to release.

It’s important to consider the implications of taking out an Equity Release plan and establish whether you have any other options available to you.  If you have any savings (over and above your emergency fund) or investments that could be accessed, they would need to be discounted. 

*Equity Release loans are generally paid back EITHER within 12 months of the death of the longest-living applicant OR at the point the last applicant living in the property moves permanently into long-term care.

What you need to know about Equity Release:

Equity Release including Home Reversion Plans and Lifetime Mortgages will reduce the value of your estate and can affect your eligibility for means-tested benefits.

Equity release can be more expensive than a traditional mortgage.

• There is no “fixed term” by which you need to repay a Lifetime Mortgage loan, therefore accrued interest may escalate quickly.
• Home reversion plans are likely to offer you much less than the market value of your property.
• Releasing equity in your property now may leave you short of funds at a later date.
• If you move home, you may need to repay some of your mortgage, particularly if you are intending to downsize.
• Monies received through Equity Release may affect your state benefit entitlement.

Your home may be repossessed if you do not keep up repayments on your mortgage.

To understand the features and risks associated with such products, please ask for a personalised illustration.

To find out more or to book your initial no-obligation consultation, please feel free to get in touch. 

Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.