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Equity Release in laterlife


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Equity Release

In retirement we are often in the situation where we live in a property that has grown in value considerably over the years and may well be  mortgage free. For many of us our home is our major asset, and with pension income possibly not keeping pace with general living expenditure increases, more and more people are looking at ways of releasing this locked up capital in their property.

Equity release is the term used to describe the ways you can do this to either provide a regular income and/or a lump sum.
 

There are two main types of equity release scheme. They are known as lifetime mortgages and home reversion schemes. With lifetime mortgages, the mortgage is repaid from the proceeds when you die or, for example, on moving into a nursing home. In the case of a home reversion you sell all, or a percentage of your home, to a third party and the lender will receive the relevant percentage value of the property when it is sold.

You can usually take a scheme in joint names so that it continues until the second death.  

If you release cash from your property you might  give it to beneficiaries now, to be used for school fees for grandchildren, for example, or as a method of Inheritance Tax Planning. Alternatively, it may be invested as an annuity to provide a regular income for life.

Equity release is a very specialised type of loan and should be discussed in great detail with all those who may have an interest in the property before being entered into.

You should also take professional advice.

EQUITY RELEASE PRODUCTS - RISK WARNING

Equity release schemes can be very helpful but are not suitable for everyone. It is important to understand the risks and to understand the cost, the level of flexibility (if you might want to move home) and the possible impact on future state benefits. 

Things to consider include:

  • whether the scheme has negative equity guarantee, so that if the value of your property decreases any outstanding debt after sale of your property won't be passed on to your next of kin
  • whether the lender will allow you to move home should you want to
  • on-going responsibility for maintaining the property and the associated costs
  • the terms and conditions of leases for home reversion and under what conditions you could lose your home

Additional information is available in the Age UK Guide and the Money Advice Service Guide

As well as the risks associated with Equity Release you may also need to consider risks based upon how you use the released funds e.g. if you are using the released funds to reduce potential Inheritance Tax and you don't survive for seven years.

The above is not a complete list of all the risks you may face and it is essential to obtain advice. We also recommend that you discuss any advice you are given with a solicitor who will be required to effect the necessary conveyancing work.

 


LINKS TO OTHER LATERLIFE FINANCIAL PAGES

Retirement Planning - General guidance, Retirement Pension Planning, Inheritance Tax Planning - General guidance, Equity Release, Long Term Care, Making a Will, Annuities, Finding a Financial Adviser


Take a look at our overall section on retirement planning too.


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