Equity release was often dismissed as an option twenty or so years ago, yet now it’s a rapidly growing area of consideration for people. Why the change?
One reason for the growth of equity release as an option is the fact that we are living longer, and our accumulated wealth has to stretch over more years and more demands. The demise of final salary pensions and diminishing annuity rates mean that people are seeking alternative ways to fund their later years.
Other reasons for using equity release are to help children get on the property ladder and as an alternative to downsizing when people want to access wealth tied up in a property but don’t want to move.
The good news is that equity release is now properly regulated by the Financial Conduct Authority and overseen by the Equity Release Council. But, you must bear in mind that any equity release product you use will affect your estate. That’s why getting professional advice is important so that your financial arrangements are consistent with any wills, trusts and your overall intentions for your estate.
Like any other financial consideration, it will be right for some people and not for others. Taking advice on the legal aspects is essential, particularly as equity release involves diluting the ownership of your property. Without the right advice, you could be creating problems for the beneficiaries of your estate. There could also be better alternatives that would help you relieve your financial worries in later life.
Who Can Apply?
Anyone aged over 55 who owns a property can use equity release to unlock some of the value of their home.
How Does it Work?
There are two types of product: lifetime mortgage and home reversion plans.
A lifetime mortgage is essentially a loan secured against your home, just like a regular mortgage. The difference is that you don’t have to make repayments unless you choose to. The compounded interest is recovered from your estate after you die along with the capital sum paid out. Be aware that compounded interest can accumulate significantly over a few years.
With home reversion plans the lender will pay a sum of money in return for owning a percentage of your home. The amount paid is less than the market value and the lender will retain their percentage of any increased value of your home when you die. For example, a lender may give you £90,000 for a one-third share of a home worth £300,000 (they will always pay an amount below the market rate). If the home sells for £360,000 after you die they will collect £120,000 from your estate (these figures are just for illustration purposes).
There is usually an arrangement fee paid to the broker in either case.
Equity release can be a good option for some people. We always recommend taking a broad view of managing your assets and income in later life rather than selecting a single product in isolation. Our friendly, impartial and fully qualified Private Client team will be happy to give you the advice you need. Contact us today on 01934 623 501 or find out more about Equity Release here.