There has been an increase in the number of people taking out equity release loans against their property. There have been more than half a billion pounds unlocked in equity release products in the first six months of 2013. This is a rise of 12% compared to 2012.
Equity release is eligible for those aged 55 years or over, and is a way for homeowners to release cash against the value of their property. Equity release can provide you with a single substantial payment, a regular income, or both, without the need to move.
In order to be eligible for an equity release you need to have a property in the UK in good condition, over a certain value. You will need to have paid off your mortgage, or have a small sum left to pay off.
There are two main types of equity release, lifetime mortgage and home reversion. A lifetime mortgage enables you to take out a loan on your home, but retain full ownership. Home reversion is where you sell your home, or part of it, to a reversion company, and you no longer own your home.
People approaching retirement, or in retirement, that are reaching the end of their mortgage term are turning to equity release to access much needed funds. The growth and demand of equity release has resulted in lenders offering more products to borrowers. Over 55’s are cashing in on their properties to fund their retirements. Equity is also considered as an option for helping to fund long-term care.
There are both advantages and disadvantages to equity release. Positive outcomes include tax-free cash or income, providing you with support through retirement, and there are no monthly repayments. Negative effects of equity release include the overall cost, the reduction of the value of your home that may have a knock on effect on future inheritance, and it could also impact your means tested benefits and tax position.
There are alternatives to equity release, such as borrowing money from family, unsecured loans, mortgage extensions, moving into a smaller home, benefits and grants, or taking in a lodger.
There are things to consider before making the commitment to equity release. Equity release is a lifetime commitment; you repay when you and your partner pass away or move into long-term care. It is imperative to get independent financial advice to make sure that any plan you choose suits you and your circumstances.
When receiving advice, ask about fees and your entitlement to welfare benefits, have a clear view of the amount of money you need and only borrow up to this amount, and make sure that you are entitled to continued support and advice. Once you do make the decision to move forward with equity release, get a solicitor.