Equity Release

Equity release is a term used when homeowners use financial products or approaches to access the value tied up in their homes. There are a few options you may like to consider.

What exactly is Equity Release?

Property is highly valuable these days, yet the money tied up in your home isn’t easily accessible. 

There are a number of products available to let you harness some of the value of your property without selling it. These include lifetime mortgages and home reversion plans. 

Both are a type of loan secured against your home.

Is Equity Release regulated?

Equity release products, providers and advisors are regulated by the Financial Conduct Authority. 

Providers are also required to be members of the Equity Release Council, which sets a number of rules for equity release products.

How do lifetime mortgages and home reversion plans work?

With a lifetime mortgage, lenders will let you borrow around 50% of the value of your home, while some may offer as much as 60%. You can access the funds as a single tax free lump sum or choose to draw down money as you need it.

With a home reversion plan you sell a portion of your home to the lender in exchange for the funds. 

With both products, the borrowing is repaid when you die or move into long term care, by seling the property. 

Does a Lifetime Mortgage mean that I have to stay in my property for the rest of my life?

No – many lifetime mortgages are transferable to a new property, as long as the home meets the lender’s criteria. 

Can you end up owing more than your house is worth, leaving your family with debt?

This is one of the most common concerns with equity release, but all equity release products are now covered by a No Negative Equity Guarantee, which means you can never owe more than the value of your property at the point it is sold. 

Are Equity Release rates very expensive?

As more equity release plans come onto the market, the more competitive the interest rates have become. Rates change regularly, so you should seek financial advice to find the most affordable way to borrow. An equity release calculator can give you some indicative guidance.

Compound interest does mean that the size of the loan will grow significantly over time, unless you choose to ‘service’ the interest regularly.

Is it true that I’ll lose control and ownership over my home?

With a home reversion plan you sell all or part of your home to the provider. There are strict rules around what you and the provider are allowed to do under the contract. Your financial adviser will explain all the details before you make any commitment. 

I haven’t completely paid off my existing mortgage, can I look at Equity Release?

Yes, having a mortgage on your home doesn’t mean you are unable to take an equity release loan. You will need to be at least 55 for a lifetime mortgage, and 65 for a home reversion plan. 

What are the common uses of Equity Release? 

There are many reasons why people choose to use a type of equity release, including: 

• To repay an interest free mortgage that is due
• To boost income in retirement
• To fund home improvements/updates 
• To support children in education or onto the property ladder

What if my circumstances change during the application process? 

Applying for an equity release product will typically take around eight weeks. If your circumstances change, talk to your advisor as soon as possible, as the changes may affect your eligibility for the product.

Bear in mind too that once you have taken an equity release product, if you choose to end it you will face an early repayment charge. 

What criteria is looked at for Equity Release? 

Key criteria for equity release products will usually include:

• Age: you must be 55+ for a lifetime mortgage and 65+ for home reversion
• You must own the property, it must be in the UK and your main residence for at least six months of the year
• The property should be worth at least £70,000 and be in reasonable condition
• You may need to meet certain credit requirements. 

What about beneficiaries concerned about their inheritance? 

People often worry that equity release will mean there will be no inheritance for their children. But with some equity release plans, you can ring fence a portion of your property’s future value for your beneficiaries. 

An inheritance protection guarantee allows you to protect a percentage of your home’s value for your loved ones. 

We always recommend discussing your equity release plans with your family so that they understand how it works and what to expect.

Mortgages by Mcateer Ltd is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.

An Equity Release product will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefits. To understand the features and risks please ask for a personalised illustration.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Please note, this article is for information only purposes and we cannot provide advice on Home Reversion plans.

A Home Reversion Plan is not suitable for everyone and may affect your entitlement to means-tested benefits, so it is important to seek financial advice before taking any action.  If you are considering releasing equity from your home, you should consider all options available before equity release. 

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Home Reversion Plan could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead

Approved by The Openwork Partnership on 04/12/2023.