In simple terms, Equity Release is a method of freeing up the equity in your home without having to move.
The money can be taken as a lump sum or as a regular income. Equity Release is essentially just like a mortgage – you find a lender who is willing to lend you the money you need and you either pay interest and/ or provide security.
Whilst it may seem like a great way to get extra funds to make the most of retirement, make life easier or to help loved ones take their own first step onto the property ladder, it is worth ensuring that the facts, figures and options are understood - and work for you in the longer term.
There are two main types of Equity Release – Lifetime Mortgage and Home Reversion.
With both, the arrangement ends when you pass, when you go into care or when you sell your property (caution must be applied if you think you may want to move as some arrangements make selling your property difficult).
Main features of a Lifetime Mortgage
• Usually available from the age of 55
• You borrow against your property
• Money borrowed is as one lump sum
• Limit is usually 60% of the property value
• Interest accrues to a final sum at the end (monthly interest payments may be possible)
• You still own your property
• You will benefit if the property value rises
Main features of a Home Reversion
• The minimum age limit may be much older than 55
• You sell all or part of your property to the lender
• Money can be taken as a lump sum or as a regular income
• Amount is usually 20-60% of the property value
• No interest is due as the lender bought at a low price
• You no longer own your property but live there ‘rent free’
• You will not benefit from any rise in property value
Key points to consider
In the case of a Lifetime Mortgage: -
• The younger you start, the more debt you will accrue through interest
• You can find yourself in a position of negative equity (unless a ‘no negative equity’ clause is applied)
• It is best to borrow only what you need, as you need it to keep interest to a minimum
For both options: -
• There may be limits on the proportion of your value you can borrow
• It is relevant to main residence properties only
• Your mortgage needs to be paid off (although a lump sum Equity Release can be used to do this)
At EHL Conveyancing we always recommend careful consideration of each option to find the one which best suits your particular needs as well as seeking professional help in relation to equity release. Indeed, it may be that you can better achieve what you want to by down-sizing, via a personal loan or, in the case of home modification, by accessing grants.
For more information, visit our website at https://www.ehlconveyancing.co.uk/ or get in touch with our team today.
The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.