Equity Release (Regulated by the FCA)
If you're an older homeowner with little or no mortgage and you'd like to increase your income or have access a cash lump sum, then you might wish to consider releasing some of the equity in your home via a Lifetime mortgage or Home Reversion Scheme.
• Lifetime Mortgage
Lifetime mortgages are generally available to homeowners over the age of 60 although some do start at age 55. You take out a mortgage on your property and the amount raised is paid to you either as a cash lump sum, income, or both. Interest is charged in the normal way but no monthly repayments are required. Instead, the interest charges “roll up” which means that over time the mortgage increases. Eventually, the original amount borrowed plus all the accumulated interest is repaid to the lender when the house is sold, either after your death, or, should you move into long-term care. Any surplus value in the property then falls into your estate.
• Home Reversion
Home reversion schemes generally start at age 65. Home reversion doesn’t involve taking up a mortgage, instead you sell your home, or a proportion of it, to a home reversion company in return for a cash lump sum or income or both. However, the amount you receive won’t fully equate to the value of the sale. For example, if your property is worth £200,000 and you sold it to the scheme for the maximum cash sum, you won’t receive £200,000. Similarly, if you sold 50% of the property to the scheme you won’t receive £100,000. This is because you won’t be charged rent whilst you remain living in the property. When you die and the property is sold, the reversion company takes its share of the proceeds. So if you originally sold 50% of the property to the scheme then they’ll take 50% of the final selling price and any surplus falls into your estate. However, if you originally sold the whole of property to the reversion company, they take the whole of the sale proceeds, even if the value of the property has risen significantly.
This is a Lifetime / Home reversion scheme. To understand the features and risks, ask for a personalised illustration
• History – The Equity Release Council
Equity release schemes have been around for a long time and many people still remember the terrible problems they caused in the 1980s and 90s. But this has all changed now and can never be repeated.
The problem back then involved soaring interest rates and falling property values. Eventually lenders asked borrowers to begin making monthly repayments on their lifetime mortgages which of course they couldn’t afford. Worse, was when the borrower died and the mortgage balance was greater than the sale price of the house, known as “negative equity”. The resulting shortfall subsequently fell as a liability to the estate, which means the deceased’s family. Now, however, lifetime mortgages are regulated by the Financial Conduct Authority (FCA) and lifetime mortgage providers are members of the Equity Release Council is the industry body for the Equity Release sector. Born from an expansion of the remit of SHIP (formerly Safe Home Income Plans) it incorporates the SHIP Standards Board, continues SHIP’s aims of protecting the customer and works to increase knowledge to help customers make informed decisions.
The Equity Release Council Code of Conduct sets strict criteria to which members must adhere. This Code of Conduct puts in place safeguards for consumers to ensure that they can have confidence in Equity Release Council members and their products and services.
We only recommend equity release schemes approved by the Equity Release Council.
Equity Release scheme are no to be entered into lightly. They represent a long term commitment and are specifically designed to run for the plan holder’s lifetime. Terms and conditions reflect this which include potentially significant Early Repayment Charges if the plan is not maintained;
The amount of equity that can be released is based upon the property value and the age of the youngest applicant. The older the youngest applicant the greater the percentage of equity that can be released. Some people may be able to release larger lump sums due to impaired health;
Schemes approved by the Equity Release Council have a Negative Equity Guarantee which means the plan holder(s) can never owe the scheme provider more than the value of the property;
You are generally required to pay the lender’s/scheme’s valuation/survey, legal fees, and arrangement/completion fees, subject to any offers or incentives, all of which are fully detailed in a Keyfacts personal illustration;
• Careful and Considerate Planning
Contemplating an equity release can be quite daunting which is why we encourage you to involve your family in these dealings. We also insist, as do the lenders and scheme providers, that you appoint your own solicitor to act for in these dealings. Equity release can also have a major impact on your estate which is something we’ll cover with you.
Other factors and implications which should be considered before releasing cash equity from a home include eligibility for State benefits, grants, your tax position including Inheritance Tax, and attitude to investment risk
• What will you have to pay us for our Equity Release services
A fee of £495 is payable on or before completion. We will also be paid commission from the mortgage lender or home reversion company that buys your home.
• How to contact us
If you would like to speak to us about Equity Release, or to arrange an appointment, please call us on 01225 319 787 or email us your contact details with a preferred contact time by clicking here.
We look forward to hearing from you.