What is Equity Release?
Equity release is a way of unlocking some of the value of your property without the need to move. The maximum amount of equity you are able to release depends on your age and the value of your property. However, if equity release is suitable for you, one of our specialist equity release advisers will help you to decide what you actually need, rather than just looking at the maximum available.
There are three different types of equity release available:
- Lifetime Mortgage
- Home Reversion Plan
- Interest Only Mortgage
Are You Eligible?
Equity Release is available to people aged 55 or over who are UK residents and own their own home.
Once these basic requirements have been met, there are a number of other details that need to be considered:
Property: your home must be in mainland UK or Northern Ireland and each provider also has different criteria which may restrict the type of property they are prepared to consider.
Existing Mortgages and Loans: if you currently have a mortgage or loan on your home, this will need to be repaid either before or at the start of your equity release plan. The released funds can be used to clear the mortgage and loan.
Other Occupiers: there must be no more than two registered owners of your home. However, if there is someone aged 18 or over living in your home who is not a registered owner, they can continue living there but they must sign a disclaimer giving up any rights they may have to living in your home when the equity release plan comes to an end.
Personal Circumstances: applications can be made in joint names or in a single name. Joint borrowers do not need to be married but they must hold full title to the property.
Is Equity Release Right For You?
Equity Release provides a solution to many different needs (see our Case Studies section for examples) but it may not be right for everyone. It is a long-term arrangement that needs to be given a lot of consideration before being entered into. One of our specialist equity release advisers will help you to consider your other options so that you only commit to an equity release plan if it is right for you.
For example, you should consider whether you would be happy moving to a smaller property, or moving in with relatives, to raise the money you are looking for.
It is also possible that raising money through equity release could impact on the state benefits you would otherwise have been eligible to receive. Our advisers will check to make sure you are currently receiving everything you are entitled to before seeing whether equity release would have any impact on this situation.
Furthermore, our advisers will look at whether you have any savings that could be used as a more cost effective way of achieving your goals, or whether your family may be able to help.
Finally, if you are looking to do some work on your property, it may be that you could receive a grant or loan to help with this work. Our advisers will be able to help by providing contact details for the relevant agencies that you will need to contact.
Important factors to consider
You must remember that equity release may reduce the value of your estate, which will impact on the amount of inheritance you are able to leave, and that future property prices may be higher or lower than they are currently.
Releasing some money from your property may also impact on your entitlement to means-tested state benefits and it may alter your tax position.
Most equity release plans have an early repayment penalty so you could incur charges should you wish to pay off a plan before your death or make a move into long term care.
We recommend that you discuss your plans with your family and that, with the help of one of our advisers, you consider the alternatives to equity release.
How are you protected?
Equity release is regulated by the Financial Conduct Authority (FCA). In addition, members of the Equity Release Council (ERC) have agreed to adhere to a code of conduct which provides additional protection to consumers. Accordingly only recommend equity release plans that meet all of the ERC code of conduct guarantees are advised.
All authorised firms must adhere to strict rules governing advice and, in the event of a complaint, consumers ultimately have access to both the Financial Services Compensation Scheme (www.fscs.org.uk) and Financial Ombudsman Service (www.financial-ombudsman.org.uk) if required.
ERC represents the majority of the equity release market in terms of volume and its members include the leading providers of lifetime mortgages and home reversion plans. All equity release providers that are members of ERC pledge to observe the ERC Code of Practice. Accordingly, the following guarantees have to be provided to customers:
- To allow customers to remain in their property for life provided the property remains their main residence.
- To provide customers with fair, simple and complete presentations of their plans. This means that the benefits and limitations of the product together with any obligations on the part of the customer are clearly set out in their literature. It should include all costs that the customer has to bear in setting up the plan as well as the tax implications, their position on moving house and the effects of changes in house values on their loan.
- The right to move their plan to another suitable property without any financial penalty. The right for the customer to choose an independent solicitor of their own choice to conduct their legal work. The firm must provide the solicitor with full details of the benefits their client will receive prior to the completion of the plan. The solicitor only signs a certificate once he or she is satisfied that their client fully understands the risks and benefits of the plan.
The ERC certificate signed by the solicitor is there to ensure clients are aware of the terms and implications of the plan including the impact of equity release on their estate. All ERC plans carry a no negative equity guarantee. This means customers who comply with the provider’s terms and conditions will never owe more than the value of their home and no debt will ever be left to the estate.