Frequently Asked Questions
Could I lose my home?
The answer is an unequivocal no. The industry trade body, the Equity Release Council, has issued guidelines for accepted practice in all arrangements, and they specifically state agreements must ensure you keep the right to live in your home for the life of your loan, whether you have sold part of it in a home reversion plan or used it as security against a lifetime mortgage loan.
All accredited advisors and brokers have to keep to these guidelines, and you should not accept deals where your house may be on the line.
Do I have to pay tax on the money I get from Equity Release?
No. All funds obtained through Equity Release are tax free. The cash available in your home was already yours – it has not changed hands and you have not gained extra income. You are just using your resources in a different way.
How much can I release?
There are a few factors that will influence how much the lender will offer to release to you: the value of the property, your age and your state of health. If it appears the duration of the loan may not be very long, for whatever reason, then the lender is likely to offer more. If the life of the loan could be many years, accumulating interest over a long period of time, then they will probably offer less.
Some lenders offer more than others, and terms and conditions differ across the market. Most schemes make sure that the accumulated debt will never exceed the property value, so lenders are careful to lend only a percentage.
Can I leave an inheritance?
Absolutely. An Equity Release plan should not be a complete drain on your estate, and most schemes currently allow you to ring-fence a certain amount to leave to your loved ones after you die. If this is something you want to ensure, your advisor can make allowances and factor this in when looking for the right kind of deal to suit you, so that you can still leave money to your family.
Can I borrow more if my property increases in value?
If your original Equity Release plan was modest and you find yourself sitting on more value in your property than previously estimated, then this could be possible. It will depend on the kind of scheme you chose originally, how much you have already released and if you meet the lender’s criteria for increasing the loan.
If your property appears secure and the housing market is stable, then the lender could be open to lending more. As ever, it is best to go over all the details with a financial adviser.
Can I move house with Equity Release?
Yes, you can. Our advisers will recommend schemes that allow you to move home, as you never know what might happen in a few years’ time. Fortunately, the market has moved with demand, and there are now plenty of ‘portable’ schemes to choose from.
Be aware that, if you do move home after taking out an Equity Release scheme, your provider will want to do an assessment of the new property 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.
I’ve already got an Equity Release plan – can I switch?
Yes, similar to a mortgage agreement, it is possible to switch from one Equity Release plan to another. If your current scheme no longer seems to be the best one for your needs, then an adviser can look into alternatives and a better deal. Be aware that terminating a plan before the end of term may incur early repayment fees, depending on the provider’s policies and the terms of your current loan.
What’s the difference between interest-only and rolling-up interest?
These are the two types of interest applicable to Equity Release. ‘Interest-only’ loans allow you to take the full lump sum and then pay back the interest on it each month, so that the loan amount itself is all that’s due when the agreement reaches the end of term. For example, a loan of £20,000 with an interest rate of 5% means you would pay £1000 each year.
‘Rolling-up’ interest means that the interest amount is added to the loan each month, so the amount owed will increase over time as interest is charged on a growing total. So, a £20,000 loan at 5% interest will increase to £21,000 in the first year, and then the 5% interest rate will be charged on £21,000 the following year, and so on.
Do I need to talk to my family when taking out Equity Release?
There is no hard and fast rule to say you must let your family know that you are taking out Equity Release on your home, but we advise that you should do so. It’s always best to be open about things that affect your care and quality of life in later years, especially how you will finance it in future.
Equity Release is a serious undertaking, and your family will appreciate your reasons for doing it, as well as being kept informed. Who knows, they may also have other suggestions to help you.
How will Equity Release affect my state benefits?
Your standard state pension is unaffected by changes to your financial circumstances, but any means-tested benefits you currently receive could be withdrawn if your new cash reserves go above a certain level. Those benefits include pension credit, council tax reduction, savings credit and income support.
However, there is 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 so you only 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.
Can I repay the Equity Release plan?
In the past, it was rare to find an Equity Release scheme that permitted repayments – they were designed to last until the recipient died or moved into permanent care, and the property was sold. However, the market has evolved and there are now quite a few schemes that will allow you to repay portions of the loan either on a regular or occasional basis, thus decreasing interest costs and keeping more of your estate intact for an inheritance.
Many schemes still impose a penalty fee for early repayment, but your adviser will tell you the exact terms of the agreement before you take it out. Some schemes allow you to pay back 10% per year with no penalty, others offer lower early repayment charges after a period time. Again, it will depend on your lender and the terms of the mortgage.
Can I release the equity in my holiday home, second home or buy-to-let property?
If you have a second property that you fully own and regularly use, then you will be able to use Equity Release to free up some of the value tied up in it. In the case of a holiday home, you must spend at least 4 weeks of the year there, it must be available for your sole use when you need it, not near your main residence, not advertised as a holiday let anywhere and only let out for a maximum of 4 weeks consecutively.
Equity Release is also possible on buy-to-let properties, with one lender having a specific scheme for buy-to-let landlords to enable them to access the value in the house to grow their portfolio.