What is Equity Release, How Does it Work and When is it Safe to Avail?

  • August 09, 2021

What is Equity Release, How Does it Work and When is it Safe to Avail?

Once you get closer to retired life, you may find yourself in dire need of additional sources of income, in order to meet your post-retirement plans (that can be any). Instead of digging the debt hole, a reasonable solution may be to release some cash from the value of your home, while continuing to live there. It is known as equity release. The equity is the proportion that you own – and an equity release is a loan secured against your home and you can turn the bricks and mortar into tax-free money. - According to UK laws, you can get access to the equity release only if your age is 55 years or more and the loan is repaid when you sell the house or die. - In later life, when people have lots of money locked in form of property and have little in form of an income. Thus, equity release is designed for older people. - You can borrow up to 60% of the total value of your home and can obtain the amount in chunks or lump sum cash.

What are the types of equity release plans?

There are two main types of equity release plans:

Lifetime mortgage:

It is the most common type, where you borrow money against the value of your home. And the mortgage is repaid from the sale of your home, move to residential care or die.

Home reversion plan:

You can borrow money by selling all or part of your home – while continuing to live in it. And the loan is repaid once you sell your home, move into long-term care or die.

What you must know about equity release?

If you are aged 55 and in need of liquid cash, equity release might seem a tempting option, as you will get money and you do not have to move out of the house. However, there are few things that you must know before availing this option. - ·To avail of equity release, you must own a property in UK that should be your main residence. - The property must be in better condition and have a certain value – as there are restrictions on the types of properties to be accepted. - If you have obtained a mortgage or loan on your property, you may still qualify for equity release but it depends upon the value of your home and the outstanding amount on your existing loan. You will have to pay off any outstanding loan at the same time as taking equity release.

What are the advantages associated with equity release?

A striking feature of equity release is that it gives money to elderly people to spend, rather than leaving it locked away in the home. It seems like a life-changing option and a ticket to live a comfortable post-retirement life. That is why, majority of people consider availing this option. Let’s have a look at the potential benefits that equity release brings along. - You can get a tax-free amount either in form of lump sum cash or smaller yet regular payments to supplement your income and can continue to live in your home. - You can continue to get benefit from any rise in the value of your property. - You can move to a suitable alternative, as equity release is transferable. However, equity release is subjective to your new home’s condition and whether it meets the property suitability criteria applicable at the time. - You can keep ownership of your home.

What are the advantages associated with equity release?

Equity release seems a good idea. Isn’t it? However, it is not something that you should not take lightly – so before you dive right in, take a pause and evaluate it from every perspective. It has some pitfalls that must be considered before availing of this option. - The biggest disadvantage is that equity release can be expensive as compared to an ordinary mortgage. - If you choose a lifetime mortgage, a higher interest rate will be charged than you would get on an ordinary mortgage. - With a home reversion plan, the financial institution will own all or a part of your property. - Equity release reduces the value of your property and the amount will go to the people named as beneficiaries. - Getting an additional amount to supplement your income may reduce your entitlement to state benefits – either now or in the future. - When you release equity from your home – you might not be able to rely on your property for money in the near future. - The home reversion plan will not give you the true market value of your home as compared to selling your property in the open market. - You can move to another property but you need to seek consent from your mortgage provider. - You will still be responsible to pay all the usual bills and all repairs and maintenance.

Equity release tips…

After reading all pros and cons of equity release, still, if you are willing to avail this option – you must read the following tips as they will help you get the best out of this situation.

Don’t take lump-sum cash…

It seems tempting to borrow as much as you can and immediately get your hands on the cash. However, all real estate experts in UK suggest you borrow as little as you need now and wait as long as you can to do it again. The sooner you borrow – the more expensive it is.

Equity release can affect benefits…

Equity release can affect state benefits that you receive and may have an impact on any benefits that you can be entitled to in future. If you receive means-tested benefits, they may be reduced or lost entirely, which include pension credit, income support, council tax support and so on.

Try avoiding risk while availing equity release…

If you consider availing of this option, make sure the financial institution that sells equity release is regulated by the Financial Conduct Authority (FCA). You should choose a company that is a member of the Equity Release Council. It is an industry body and its members agree to abide by a voluntary code of conduct. Above all, make sure that you seek advice from different specialist equity release advisers before taking the final step. You can also talk to our experts and we can guide you to the leading mortgage brokers in London with expertise in this field and help you reach a conclusion. For further information and to make an appointment, please contact on this number:------ or write an email to us at:……