1. What is it?
A scheme designed to allow older homeowners a way to ‘release’ money from their homes to spend as they wish without having to sell or move.
2. Are there different schemes?
There are two main types; lifetime mortgages and home reversion plans. Both are regulated by government watchdog, the Financial Services Authority.
3. Home Reversion
This plan involves selling all or part of your home, at a substantial discount on its market value, to a third party for a lump sum or regular income. In return, you have the right to remain living there as long as you wish. When the property is sold, usually after your death, the reversion company receives its share of the property, including any increase in value from the sale proceeds.
4. Lifetime Mortgage
Currently the most popular way in the UK of unlocking cash from your home - letting you borrow a set sum against its value. You can then continue to live there and pay no interest during your lifetime. Instead, the interest is ‘rolled up’ and added to the loan, which is paid off from the proceeds when the house is sold, normally when you die or move into residential care.
5. Flexibility
Cash released by a lifetime mortgage is usually in the form of one lump sum. Newer, flexible and increasingly popular products such as Prudential’s Lifetime Mortgage allow you to take out money as and when you need it, which could reduce the total interest owed when the house is sold. This facility is subject to maximum limits and under exceptional circumstances, could be restricted.
6. Any Requirements?
Yes. To be eligible for a lifetime mortgage, you normally need to be over 55 and have paid off most or all of your mortgage. You may need to pay valuation and legal fees, so ask about all charges before committing. Other eligibility criteria apply.
7. Right for you?
Equity release schemes may not be suitable for everyone. They may for example, affect your eligibility for certain state benefits, your tax position and some options when selling your home or moving. (See point 10)
8. Any other options?
Before taking out a plan, consider other options for meeting your financial needs, such as releasing value in your home by moving to a smaller or lower-value property or using other assets you may have to help fund your retirement.
9. Think SHIP
The equity release industry is now fully regulated but it’s worth considering whether a company subscribes to Safe Home Income Plan’s (SHIP) code of practice. Members agree to abide by a voluntary code of practice designed to safeguard homeowners.
10. Talk to someone
Seek financial advice if you’re interested in equity release, but still have questions you’d like answered. Discuss your plans with your family too, as any scheme will reduce the amount of money you can leave as an inheritance. At Michael Knight Mortgages, I am fully qualified to discuss this very sensitive area with you. Why not call on 0845 029 9162 or email michael@michaelknightmortgages.com