What is Equity Release?
Equity release is the process that allows homeowners to take out the equity in their property in order to assist with income or capital needs. If you are looking into equity release as an option to release some cash, there are two main options you need to consider.
A lifetime mortgage is a form of equity release where you take out a loan secured on the property but you still retain ownership of the house and can remain living there. The loan amount then only has to be paid back when you pass away or you go into long-term care.
The second type of equity release is a home reversion plan. A home reversion plan differs from a lifetime mortgage because it’s not a loan. Essentially, you sell all or part of your property to an equity relief provider in return for cash in a lump sum or through regular payments. You can live in the property until you die, under the condition that the property is fully taken care of. If you are looking into equity release but still want to retain a percentage of ownership in the property, you can ring fence a percentage (which won’t change, even if the house value increases or decreases) then when it comes to selling the house, the funds are split according to the levels of ownership between you and the equity relief provider.
The main purpose of equity release means you retain the right to stay in your home until you die or go into long term care. All of our products are governed by the equity release council and we have what’s known as no negative equity guarantee – which means you’ll never end up owing more than the property is worth.
As advisers, we generally focus on lifetime mortgages as a form of equity release.
Who is eligible for a lifetime mortgage?
Generally, you can apply for a lifetime mortgage if you are over 55 years old and you have equity in the property you’re living in that’s worth over £70k. One thing a lot of people aren’t aware of is that there’s got to be no commercial element tied up in the premises – so you won’t be eligible for a lifetime mortgage if you have a business running from your home.
Why should you take out a lifetime mortgage?
There are many reasons why people look to taking out a lifetime mortgage. One thing we advise against is taking out equity release for investment purposes. So you couldn’t take it out to invest in the stock market or a buy to let property, for example. You can however release equity to buy a second home, just as long as it’s not being used to let out and is instead used as a holiday home for you and your family.
A common reason for taking out a lifetime mortgage is to clear an existing mortgage. For example, if you’ve had an interest only mortgage for a long period of time and the bank needs you to start paying it back, you can turn to equity release to help provide the funds you need. This takes away a lot of pressure and equity release can provide a real lifeline for a lot of people in this situation.
For some, equity release can simply just provide some income. If you have money tied up in property but aren’t deemed as ‘cash rich’, equity release can help you financially with your everyday living and pay for things you otherwise wouldn’t have been able to afford.
Another common reason for equity release is home improvements. It’s no secret making changes to your home can be a costly process and it’s very common, particularly if you’ve been living in the property for a while to change the look and structure of your home.
If you are a parent, you may also consider equity release to help your offspring or other family members take their first steps onto the property ladder. For first time buyers, the maximum loan to value (LTV) is 90% LTV on their first home. Meaning, there’s at least a 10% deposit required in order to secure a property as a first time buyer – a lot of parents consider equity release in order to provide the 10% deposit on behalf of their children.
Divorce can also be a reason behind equity release and taking out a lifetime mortgage. If you’ve lived in the marital home but want to buy your partner out, you may be struggling to obtain a larger mortgage so you could then turn to equity release to provide the funds in order for you to buy your partner out of the property.
How much money can you get out of your property?
The amount you can take out as equity release predominantly relies on the value of your property, your age and how healthy you are. There’s no ballpark figure we can suggest because everyone’s case is personal to them.
However, the older and less healthy you are tends to mean you’ll be able to borrow more because there’s less risk involved for the lender – if they’re giving you a lifetime mortgage and you’re young, fit and healthy you could live a lot longer with no issues so they’ll tend to lend you less.
If you’re thinking about getting a lifetime mortgage…
Talk to an expert first – equity release and lifetime mortgages shouldn’t be seen as a go-to first option. You should consider other options alongside equity release to ensure you are doing the right thing for you and your circumstances. Equity release might be the best option, but it’s not always the only option.
Talking to an expert who has access to the market and a variety of lenders rather than going direct also means you can sit comfortably knowing you have got the best deal for you and your circumstances. As knowledgeable and experienced brokers, we always advise on the most cost effective, suitable product.
Why do we do what we do?
Equity release can be the only solution for some people to generate cash that will change their lives, which makes it an incredibly rewarding form of finance to work with people on.
We sit and listen to your situation and provide you with a solution, allowing you to have the funds you need to do something you really want to do – whether that’s provide your children with a house deposit, go on the holiday of a lifetime or clear debts that have been amounting up for a long period of time.