Equity Release

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Equity release schemes are either lifetime mortgages or home reversion plans and allow you to release much needed cash from your home, whilst retaining the right to live in it for the rest of your life.

You'll need to get specific information about both so you can decide which one is right for you. They work differently and are quite complicated, so you will want to get professional financial advice.

There are various ways you can unlock some of the market value (equity) in your property.  For example you could downsize to a smaller property or one of lower value, perhaps by moving to a different part of the UK where house prices are cheaper.  Downsizing will give you maximum value from your home, but there may be disadvantages such as the hassle, disruption and cost of moving. You may also be very attached to the area where you currently live.

There are 3 main choices when it comes to releasing equity from your home, which are:

  1. Lifetime Mortgages - a type of Equity Release plan that is a loan secured on your home.  No monthly repayments are made on the loan until the death of the last surviving partner or their moving permanently into long term car.  You can opt for a roll-up or a fixed-rate mortgage
  2. Home Reversion Plans - a type of Equity Release plan that involves all or part of your home being sold to a home reversion company. All plan providers give you the right to remain in your home for life
  3. Drawdown Plans - a facility within a lifetime mortgage that allows you to take cash payments in stages as and when you require them

All of these schemes can be helpful in certain circumstances and there may be more suitable methods of raising the funds you need.

Advantages of Equity Release

  • Retirement can be a time of fixed income and many people have valuable homes but little spare cash. Equity release can provide tax-free cash to help alleviate this problem
  • Flexibility - you can use the cash you release to spend as you wish.  You may want to use the money to take that holiday you've always dreamed of or perhaps visiting family that you havent seen for years.  You might want to buy a new, more reliable car to help you get around. You could even use the extra funds to help support your family, children or grandchildren
  • Many people simply use the money they release to make up the shortfall some people experience when they retire
  • Products are available where no payments are required from you until your home is sold (other than initial charges)
  • You remain in your home for the rest of your life if you wish
  • Further cash can be taken by equity release at later dates (depending on how much you take initially)
  • You still own your home with a Lifetime Mortgage, so all growth in the value (if there is any) belongs to you
  • You can usually still move home (subject to certain restrictions)

Things to bear in mind with Equity Release

  • Equity release could affect your entitlement to some state benefits and may affect your tax position
  • All equity release plans will reduce the value of your estate, therefore the amount that will go to your beneficiaries on your death.  This could be positive or negative depending on your financial circumstances and the value of your estate in relation to inheritance tax
  • Equity release can limit your options for moving house in the later years
  • With a home reversion scheme, when you sell a part of your home, you will probably not get the full market value

An Equity Release Plan 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, ask for a personalised illustration from your mortgage adviser.

Useful Links

>>> Retirement Planning Information & Advice
>>> Pensions Information & Advice
>>> Wills & Probate Information & Advice
>>> Remortgages
>>> Pension Calculator
>>> Pensions & Retirement Blog


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