Equity Release Mortgages
What is Equity Release?
If you are aged 55 or over, then Equity Release is a way for you to release capital tied into your house. This can be done without having to sell your property or move out. All money taken through Equity Release is tax free.
This means you can put it to positive use to improve your quality of life. It can be paid as a lump sum or a steady stream of smaller payments. An equity release loan lasts until the house is sold, when you either die or move to permanent care.
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How does Equity Release work?
Equity Release mortgages are a range of products that are only available to homeowners over the age of 55. There are typically two types of Equity Release plans which usually include a Lifetime Mortgage or Home Reversion. Both options allow the homeowner to release equity from their home in different ways.
Equity Release mortgages have no fixed term and come with a ‘no negative equity guarantee.’ This means that you or your family will not be liable to pay any more after you have passed away.
Depending on the plan you choose, you can receive the money in different ways. You can take it as a lump sum for example, to carry out necessary home improvements, or you can take several smaller payments, spread out over a set period. The final option is a mixture of both options.
Specialist Equity Release Mortgages
Equity release can be difficult, but we’re here to make it as simple as possible.
What qualifying criteria do I need to meet for Equity Release?
Each provider will have their own requirements just like a mortgage lender would. A guide to some of the most common requirements is provided below:
- You must own the home you want to release equity from.
- You are a homeowner at least 55 years of age or older. If there are two homeowners, they will both need to be 55 or older.
- Your home must be worth at least £70,000.
- The home you want to release equity from must be your main residence, with you living there for 6 months out of the year.
- Your home must be in a reasonable condition.
If you meet these requirements, then you will increase your chances of being accepted by a provider. If you’re not sure if you qualify, contact us and we’ll pair you with one of our expert advisors.
Types of Equity Release
What is a lifetime mortgage?
This is where you can take out a mortgage secured on your property. This is usually up to 35% of the property’s value. You will retain complete ownership of your property during a lifetime mortgage.
Interest will then increase for as long as the loan is in place although with certain products, you can choose to pay the interest each year to avoid it building up. This is known as an interest-only lifetime mortgage.
The amount you can borrow with a lifetime mortgage will depend on your age and the property value. The older you are, typically, the more you can release – usually up to 60% of the property’s value. As mentioned previously, payments can be received as either a lump sum or as smaller consistent payments, or both.
When the homeowner dies or moves into long-term care, the loan amount and interest is paid back from the sale of the house.
What is a home reversion plan?
This is where you sell all or part of your home to a loan provider. In return, you get a tax-free lump sum or smaller regular payments. Again, you are entitled to live in your property rent free until you die or move into care. Additionally, you will be required to maintain the property and insure it.
The percentage of your home that you retain will always be the same, no matter how the value of the property fluctuates. As times goes on, you can choose to take further cash releases which will affect the size of the portion you own. Then, at the end of the plan, your property is sold and the capital from this is used to settle the loan.
Finding the right Equity Release provider for you
Finding a provider that treats its customers fairly and offers competitive products is essential for us. So, what do we expect an Equity Release provider to offer when looking at products for our customers?
The Equity Release products they offer must feature:
- Fixed interest rates – the rate on a lifetime mortgage must be fixed for the life of the loan. If it’s a variable rate, then it will need to be capped.
- The right to remain – you must have the right to continue to live in your home until you move on.
- The right to move – you must be allowed to move to another property, as long as it meets the terms and conditions of the loan.
- A no negative equity guarantee – ensures that if the sum from the sale of the house does not meet the amount of the loan plus interest due, then neither you nor your estate will be liable to pay any more.
The provider must:
- Always act with the best interests of their clients as a priority, treating you fairly in all their actions.
- Ensure conflicts of interest are managed fairly and dealt with on a completely practical level.
- Exercise due skill, care, and diligence in all they do.
- Uphold the standards set out by their professional bodies.
There isn’t a list of the best Equity Release providers that we would suggest. This is because everyone’s situation is different, meaning what worked for someone else might not work for you.
Here are some of the providers we commonly deal with and are happy to use:
What Equity Release interest rates should I expect?
As with finding a lender, interest rates for Equity Release will depend on your situation. Typically, Equity Release interest rates can range between 3% and 6%.
However, this can vary, and the figure given is just a guide. If you want to get a more accurate figure based on your circumstances, get in touch today.
Fully qualified Equity Release broker
There is an increasing amount of information available on the internet and it can be confusing to know who to turn to.
Our Equity Release advisors aim to answer the growing need by clients for specialist services in later life. Our advisors are fully qualified and committed to providing you with excellent service.
As a member of the Equity Release Council, we prioritise your interests first. Ensuring the highest standards of advice and secure solutions.
How Does Equity Release Work?
What is the Application Process?
Find the answer to all your Equity Release questions here.
What Can My Equity be Used For?
Find out what people usually release equity for.
How Have The Mortgage Centres Helped people?
Discover how we’ve helped people and what they have to say.
What Costs are Involved with Equity Release?
Learn about the costs you can expect to pay when you release equity.
Frequently asked questions
There are a range of fees that can be charged when it comes to Equity Release. They include:
- Property survey fees (if required) – this fee will depend on the estimated value of your home.
- Legal fees – any solicitor costs involved.
- Broker and advisor fees – depending on the lender, you’ll typically be charged a percentage of the loan amount or a fixed cost.
Yes, there are several other ways to achieve this:
A popular method is through remortgaging to release equity. This can help you get a new and improved mortgage deal, which could allow you to free up equity in your home.
Remortgaging is commonly used for debt consolidation or home improvements, although, there are a range of things you can do with the equity that is released.
There’s no rule to say you must let your family know that you’re taking out an Equity Release plan. However, we advise that you do so. It’s always best to be open about things that affect your care and quality of life in later years.
Your standard state pension is unaffected by changes to your financial circumstances, although any means-tested benefits you receive could be withdrawn if your new cash reserves go above a certain level. These benefits include pension credit, council tax reduction, savings credit, and income support.
However, there’s a way to keep your savings below the exemption threshold. Instead of taking the entire Equity Release amount in one lump sum, you can arrange a ‘drawdown’ loan. This is where you receive smaller amounts at steady intervals. The added benefit of this is that you only pay interest on the amount taken. You should check with your benefits office or local authority to confirm their policies.
Absolutely, an Equity Release plan should not be a complete drain on your estate. Most schemes currently allow you to ring-fence a certain amount to leave to your loved ones after you die.
Yes, you can. Our advisors will recommend schemes that allow you to move home, as you never know what might happen in a few years’ time. Currently in the market there are plenty of ‘portable’ schemes to choose from.
Be aware that if you do move after taking out Equity Release, your provider will want to do an assessment of the new property. This is to make sure it still meets the lending criteria. Some of the loan may be repayable if the new property is worth less than the current one.
Yes, similar to a mortgage agreement, it’s possible to switch from one Equity Release plan to another.
Be aware that terminating a plan before the end of term may incur an early repayment fee. This will depend on the provider’s policies and the terms of your current loan.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1, 2 & 3 | Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP) | Year Attained: 2001
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