Equity Release

What is it?

Equity release involves receiving a steady stream of income or a lump sum from your house, while still being able to live in it until you die. It does this by releasing the equity that you have in your home.

The equity is the difference between the current vaue of your house and the outstanding loans and mortgages secured against it. As a result, the more equity that you have, the higher the income stream or the bigger the lump sum.

With equity release, typically you don't have to make any capital payments for the lump sum or income that you receive until your home is sold, either when you die or when you move into long term care. The important thing to remember is that you retain the right to live in your home until one of these eventualities occurs. You retain legal title to your home whilst living in it and you also retain the responsibilities and costs of ownership. Equity release schemes are fully regulated by the Financial Services Authority (FSA) for your protection.

Are there restriction on what I can use the money for?

No, you can use the money for absolutely anything!

Types of Equity Release

  1. Lifetime Mortgage - These are available to people aged over 55. The lender gives you a lump sum and/or a monthly income upto 50% of the value of your home. The interest gets rolled up and added to the loan which is then paid off when the home is sold. If there is any surplus after the home sale then this is distributed to your next of kin.

  2. Interest Only Mortgage - You pay the interest part of the mortgage while you live in your home. On death or need for long term care, the original mortgage amount is paid out of the proceeds, the balance will be given to your next of kin.

  3. Home Reversion - You sell all or part of your home, normally to a reversion company. They pay you a percentage of market value, for example, between 30% and 50% to cover the fact that you will be living in your home rent free and it may take years before you die.

  4. Home Income Plan - These used to be the most popular type of equity release plans. They work in the same way as a pension. You get your lump sum and use it to by an annuity from an insurance company which pays you a monthly income. It is important to note that you will need to make monthly mortgage payments out of your income. The lump sum is paid off after your death from the proceeds of your home sale.

Things To Consider

  1. All equity release plans will reduce the value of your estate.

  2. Equity release could affect your entitlement to some "state benefits" and may affect your tax position.

Equity Release & Remortgage

The main difference between Equity Release and Remortgaging is that with Equity Release you do not have to pay the capital back until you die.

Equity Release Criteria

To qualify for Equity Release you must :-

  1. Be aged 55 95 (both you and your partner if you jointly own the home).

  2. Own your own home.

  3. Have a home worth a minimum of 75,000.

  4. Have little or no mortgage, no more than 20% of the value of your home any outstanding mortgage must be repaid with the cash released.

  5. The property must be freehold or leasehold with a minimum remaining lease period of 75 years or more.

  6. The property must be of standard construction.

If you do not qualify for Equity Release, please click here to read our remortgage information.

It is important to carefully consider all of your options before entering into equity release.