Equity Release

There is no doubt that equity release has become increasingly popular over the last few years and although this can be an effective way of releasing money tied up in property it is a complex area where the risks should be considered in depth. This is certainly not something that should be rushed and due time and care should be given if it is being considered.
 
In summary equity release is catered for by a range of products for people aged 55 and over that let you access the cash tied up in your home.
 
Two main options exist:
 
Home reversion – this is where you sell part or all of your home to a provider of the scheme and in return you receive a lump sum or regular payments.
 
You retain the right to live in the property until you die.  Although rent free, you have to insure it and maintain it.  At the end of the plan the property is sold and proceeds paid to the owners of the property, so if you have kept part of the property then this would be available as an inheritance for beneficiaries.
 
Lifetime mortgage – this is where you take a mortgage out on the property but you retain ownership.
 
You can choose to make repayments or alternatively the interest can be rolled up. The loan is then repaid if you died or moved into care. The lifetime mortgage is the most popular option.
 
Whilst there can be benefits for individuals considering the above, there are also important considerations. For example
 

• Lifetime mortgages usually attract a higher rate of interest than a standard mortgage and if the interest is rolled up the debt can grow quickly.

 

• Home reversion plans also do not give you the value you could likely achieve by selling your home on the open market.

 

• The money released may affect your tax position and any state benefits you receive.

 

• If you decide to move/downsize, you may not have enough equity in your home to do so, you may need to repay some of the mortgage debt before you can do so.

 

• Arrangement fees tend to be relatively expensive, they can commonly run into a number of thousand pounds. If you change your mind there are also likely to be early repayment charges and the scheme can be complicated to reverse.
  

 

• If you have taken an interest roll-up version you are very likely to have much less to pass on as an inheritance.

 
Although the plans can provide an effective solution, all of the elements need to be considered, the drawbacks as well as any potential benefits, and you should seek advice from an appropriate adviser who has the specialist qualification in this area.