Equity release schemes are a popular way for homeowners over the age of 55 to borrow money. Unfortunately, unregulated lending and products that were prevalent in the 80s and 90s have given all forms of equity release a bad reputation and led to many misunderstandings about how equity release schemes may affect individuals. But the
HOW DOES EQUITY RELEASE WORK?
If you’re a homeowner aged over 55, with a property worth at least £70,000, equity release is a way for you to free up some of the money tied up in your home, in the form of tax-free cash.
This is either done through a ‘lifetime mortgage’ or ‘home reversion’ plan.
A lifetime mortgage is a loan secured against your home, there are options where you can make monthly payments and options where you don’t have to make any monthly payments at all. The lifetime mortgage is only repaid when your property is sold; either when you downsize or when you and your partner have both passed away or moved into long-term care.
A home reversion plan allows you to sell some or all of your home to a home reversion provider in return for a lump sum or regular payments.
As independent experts in the local area, we‘ve got many years experience of helping clients use equity release to help with their retirement funding.
WHAT ARE THE BENEFITS?
The money can be used however you wish. It should give you the flexibility to increase your options.
You can use the money however you like, such as:
- help your grandchildren with student fees or to get on the property ladder
- use it to pay for a special holiday with all your family
- make home adaptations so you can stay in your own home for longer
- pay medical bills, home care or legal fees
- buy a new car, motorhome or caravan
- fund a new hobby and leisure activities
With the schemes we recommend, you will receive a ‘no negative equity’ guarantee which means you will never owe more than the value of your home. Both ‘lifetime mortgages’ and ‘home reversion plans’ are regulated by the Financial Conduct Authority and the Equity Release Council.
WHAT TO BE AWARE OF
Equity release will reduce the amount of inheritance you can leave. It may also affect your tax position and your entitlement to means-tested benefits. This is why we always recommend that we meet face to face with you and try to get the wider family involved to make sure it’s the right course of action.
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FREQUENTLY ASKED QUESTIONS
Equity release is the process of accessing money from the value of your home in order to gain greater financial freedom in another area while retaining use of it, unlike gaining access to funds through selling your home.
Equity release is the general term that covers all products that enable you to unlock the potential of what your home can do. Meanwhile, both lifetime mortgages and home reversion are equity release products that would form your individual equity release plan. A lifetime mortgage is a loan secured against your home while retaining full ownership. Home reversion, on the other hand, is when you sell all or part of your home at less than market value in order to access money and stay on in your home as a tenant, but paying no rent.
There are four main criteria to qualify for equity release. First, you must be over the age of 55. You must be a homeowner with property in the UK. This property must be worth at least £70,000. In addition, you must have little to no mortgage left to pay off. There can be other factors involved, but these are the primary factors.
The amount of equity that you can release from your home can range from 20-50% of its value. The final amount depends on both the value of your home and your age. Frequently, older homeowners are able to release more equity than younger ones.
Basically, no, you will not have to pay taxes on the money that you get from an equity release plan. Because the money received in the borrowing process is not classed as income, you will not be required to pay income tax on it and, as it is a borrowing plan, it does not qualify for capital gains tax.
WHAT OUR CLIENTS SAY
For many beginning their equity release journey, questions crop up along the way. To better help you make a decision about whether equity release that is right for you, we have gathered the most frequently asked questions that we come across and provided the answers you are looking for! What is equity release? Equity release
As you begin looking for financial solutions, you may find yourself feeling unclear about how to make the most of your assets. When you consider what your home can do for you in particular, uncertainty frequently comes down to understanding the difference between selling your home and equity release products. The differences between those two
A guide to equity release
Our expert written guide breaks equity release down into an easily understandable format, helping you to decide whether releasing equity from your home is the right option for you.
When making big decisions, the more informed you are the better. Building up an in depth understanding of the two main types of equity release scheme, as well as the implications for your future is essential before you decide on anything. Making the wrong choice could have a negative impact on your financial future.