Taking out an equity release or lifetime mortgage product is a big financial commitment, very similar to taking out a mortgage, so it is important that you know how to identify a reputable and trustworthy provider.
Equity release and lifetime mortgage companies will all vary with regards to their:
If you are seeking help to find the best lifetime mortgage option for you, this can come from a reputable independent financial advisor or mortgage broker who specialises in lifetime mortgages and equity release. They are often the best way of finding out who can provide the most suitable product for your personal needs and circumstances. They will also inform you of what you need to avoid if you want to have the best protection.
A quick guide to equity release and lifetime mortgages
Equity release is a financial product, available to those aged 55 and over, which allows you to release the equity that you may have in your home, or other investment property, for:
There are two main equity release products – lifetime mortgages and home reversion plans. As home reversion plans are far less common, with some lenders no longer offering them at all, the rest of this page will just talk about lifetime mortgages.
The money released first has to be used to pay off any outstanding mortgage that you have on the property, but then the rest can be used for any legal purpose. Common uses included:
No monthly repayments are required throughout the term of the loan as the capital and interest are repaid when the property is sold after you have passed away or moved into a permanent care facility.
Equity release is rapidly growing in popularity due to the number of benefits that it provides.
Any money released with an equity release plan is tax-free and can be used for anything you want. You can receive a lump sum, a regular income to support your pension, or the ability to withdraw smaller lump sums as and when you need it.
No monthly repayments are required throughout the full term of the loan. Everything is paid off in full when your property is sold after you pass-away, move into a permanent care facility, or sell the property, for example if you wish to downsize later.
However, if you do have the ability to make repayments then there are plans that allow for this. The benefit of making monthly repayments is that the amount you will end up paying back in interest will be reduced.
Some people think that the only way of releasing a large sum of money from your property is to downsize. This is a good option if you don’t mind moving, but you may not want to leave the family home or to have the stress of moving house later on in life. With equity release, you could be able to release the money that you need and stay living in the property.
The interest rate on most lifetime mortgage plans is also fixed throughout the entire term of the loan, which will give you security by knowing exactly how much you will owe at the end of the term.
There are a couple of drawbacks to equity release lifetime mortgages that you should consider before you think about applying. If you choose a plan where you don’t make any monthly repayments, the interest can build up substantially. As the capital and interest will be repaid when your property is sold, it’s important to understand how this will affect your estate and the future inheritance that you will be leaving your family.
Also, since equity release is providing you with an income, it can also affect your entitlement to certain means-tested benefits.
Regulations around equity release are very strict and most lenders operating in the UK are not just registered with the FCA, but are also members of the Equity Release Council. Any member of the Equity Release Council has to follow their strict statement of principles and product standards, so make sure to avoid any company who isn’t a member of the Equity Release Council.
Lenders who are members of the Equity Release Council all offer the following:
Having a ‘no negative equity guarantee’ on your equity release plan is very important. This means that, if the amount you owe ends up being more than the eventual sale of the property because of the build-up of interest or a fall in house prices, the lender will write off the rest of the debt. If there isn’t a ‘no negative equity guarantee’ then your estate will be held liable for repayment.
All lifetime mortgages available from an Equity Release Council member have to feature a fixed interest rate or it must be capped if it’s a variable rate. This gives you security by knowing the maximum amount that you’ll have to pay back. If you’re on a plan that doesn’t have a fixed or capped rate, the interest could increase substantially and you’ll have no way of knowing what you’ll owe at the end of the term.
As an equity release borrower, you must be given the right to remain in your property for life, or until you move into care. This is providing that the property remains as your main residence and you abide by the terms and conditions of your contract.
You must also be given the right to move to another property during the term of the loan. This is subject, however, to the new property being acceptable to your lender as security for the loan.
For more information and to find out how much equity you could release from your property, visit our easy-to-use equity release calculator.
Last updated: 01 October 2020 | © KIS Bridging Loans 2020