Five Key Things You Need to Know About Equity Release

1. What is equity release?

Equity release means receiving a certain amount of cash against the value of your home. It is an agreement between a homeowner (aged 55 or over)and a provider, enabling the homeowner to receive cash from the money tied up in their home. The money is free of tax and enables homeowners to benefit from the value of their home.

Equity release also allows retired homeowners to carry on living in their home for as long as they want to. Homes are often people’s greatest asset, yet the value remains untapped. Equity release schemes allow the value of that asset to be turned into cash to enrich older people’s lives.

2. How can equity release help me?

Retirement can be a period when people’s income is fixed, yet reduced well below the level they were used to before retirement. Yet they have huge potential value in their homes. Equity release enables the release of that potential value into real tax-free cash, which can be spent on anything they like.

Is it a holiday you’ve always dreamed of? That retirement sports car? A visit to far-off members of the family? Or perhaps you would like to use the money to help your children or grandchildren.

In fact, in these days of relentlessly rising prices – especially for basic needs such as food and energy – many people use the cash from equity release to enable them to carry on living a good lifestyle.

However, you should know that releasing equity from your home could reduce your entitlement to some state benefits, it could make a difference to your tax position, and will reduce the value of your estate when you die.

3. What are the different types of equity release?

You obtain equity release by taking out a mortgage. There are two main types:

a. Roll-up Lifetime Mortgages

This type of mortgage enables you to borrow money using your home as security. The value of your property allows you to receive an agreed sum, and interest payments are added to the loan annually. When the property is finally sold, the provider must be paid the initial loan amount plus the accumulated interest. Most plans have fixed interest rates which remain unchanged throughout your lifetime.

b. Fixed Repayment Lifetime Mortgage

This type of mortgage specifies the amount that must be repaid when the plan is agreed. The amount is dependent on things like your health, age and property value. When you (and your partner) die, or when the property is sold, the agreed sum is taken from the sale of the property.

4. What is the equity release process?

You should consult an expert on equity release to understand how much equity you could release from your property. There are some calculators on the Internet which could be a first step. The consultant will also tell you more about the details of your repayments and help you work out which plan is best for you. Remember that the amount you could receive is dependent on the value of your property, as well as your age and health.

5. Are there any qualifying restrictions?

Not everyone qualifies for equity release. There are a few restrictions, the first one being age.

a. You must be aged between 55 and 95.

b. The home from which you hope to release equity must be your permanent main residence, which you live in for at least six months of the year.

c. You must own the property in question.

d. The property must be worth at least £70,000.

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