Everything you need to know about equity release in the UK

Before unlocking the hidden value in your home, check out these 10 equity release facts and make sure your next move will be one you can be proud of!

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Are you 55+ and could do with some extra cash for home improvements, family expenses, or simply to boost your pension?

If yes, equity release might be the answer you’ve been looking for. The highly sought-after financial plan allows homeowners aged 55 and above to unlock the cash tied up in their home while retaining ownership of the house.

If you have no clue about how does equity release work and what it offers, though, here are some critical facts to consider:

Have you been thinking about Equity Release?

#1. You Can’t Pass On the Debt

One of the main things that most equity release clients worry about is that if they claim equity release, they might pass on the debt to their kids or leave no inheritance.

It’s not true. Even in the rarest of cases where the value of your home depreciates to cater to the mortgage expenses, the remaining loan will be written off. In most cases, there’s always a guarantee for negative equity.

So, there’s no need to worry and let anxiety prevent you from enjoying your retirement. Apply for equity release and make your dreams come true.

#2. You Must Get Both Financial and Legal Advice Before Taking Out a Plan

According to the Equity Release Council and Financial Services Authority, you need to ensure that you always seek professional advice before embarking on taking out an equity release plan. A financial adviser will help you navigate through the various processes and also assist in evaluating your property.  

They’ll also guide you on the various charges you might incur in the process and the early repayment charges. They can also advise you on equity release alternatives like downsizing or using other assets to raise funds.

A solicitor will guide you on the legal needs of equity release and walk you through your rights after claiming equity release. You should, however, remember to seek professional advice from persons and companies approved by the ERC1  and FCA.2 

#3. There Are Certain Guidelines to Moving Homes

You want to move homes but don’t know if you can since you took out an equity release plan. Well, this is one of the greatest fears of any homeowner with an equity release plan at hand, but that shouldn’t be the case.

You can always move homes provided that the house you’re moving to meets all the contractual requirements of the plan provider. So, before you embark on looking for another place, make sure you find out from your lender what their basic needs are. That way, you can be sure that you’re getting value for your money.

#4. You Don’t Have to Pay Back the Cash

Unlike traditional mortgages, equity release allows you to continue living in your home until you pass away or move into residential care. Only then is the loan customarily paid from the sale of your home.

However, there are some plans like the voluntary repayment plan that allows you to pay equity release early.

#5. Interest Rates are Fixed

Since 2015, equity release interest rates have dropped significantly – and that can be the agreed value for the life of your loan. 

The amount of interest you pay at the end of the plan depends on how long the scheme will run and the type of equity release scheme you choose. It’s essential to remember that the equity release plan ends when you die or move into permanent care.

With a limited lifetime mortgage plan, for instance, since you don’t make any monthly reimbursements, the interests mount up quickly. Every year the amount of interest due will be added to your overall loan, and from then on, it’ll accrue.

It’s, therefore, crucial to remember to sign up for a plan with a “no negative equity” guarantee since it’ll ensure that you and your family don’t owe the equity release company more than the value of your property.

#6. Look out for State Benefits

Taking an equity release plan can affect your eligibility for means-tested benefits. So, if you receive these, having money in the bank can have an impact on them, so you need to check with your plan provider before proceeding.

Moreover, by taking cash out of your estate, there’ll be less left later when you want to leave some money in your will. So, make sure that you try to find a balance between what you want now and what you want to leave.

#7. It’s Regulated

Not only are lenders and financial advisers governed by the FCA (Financial Authority), but the financial products themselves give you some assurance.

It’s also a law that all equity release plan providers sign up to be members of the Equity Release Council and abide by its codes and principles. It’s also inclusive of the ‘no negative equity guarantee,’ which makes it impossible ever to owe more than the value of your house and allows you to transfer your plan to another home, incurring no penalties.

#8. You Get Tax-Free Cash

By taking out equity release, you get tax-free cash that you can spend however you want. Whether you need to make any home improvements, go on a world tour, or help your children, it’s all up to you.

#9. There Are Eligibility Checks

There are certain variables that you must meet before taking out a plan:

  • You have to be a UK resident, though some lenders can impose localised rulings on whether they can encompass the extremes of the UK within their remit.
  • Your home must be valued from £70,000. Theoretically, there’s no upper property valuation limit. Nevertheless, some lenders can impose an upper amount to protect them from the risks.
  • You need to be at least the age of 55. However, some plan providers might require you to over 60.

#10. Value Amount

One question most plan providers get is if one can know the value of the equity release that they’re entitled to. Well, this is all dependent on your lender. Nonetheless, most plan providers offer you a minimum of £10,000 and £100,000 for others.

The maximum you can borrow also depends on the age of the youngest homeowner, their health and lifestyle, and the estate’s market value. Also, the older you are, the more equity you can release.

Common Questions

What’s the Best Way to Release Equity from Your House?
Is There an Alternative to Equity Release?
Can You Lose Your House with Equity Release?
Can You Switch Your Equity Release Plan?
Can Equity Release be Paid Back?
Do I Pay Tax on Equity Release?
Do Banks Offer Equity Release?
Can I Increase My Mortgage Term?
Can I Sell my House if I Have Equity Release?
Can You Move House with a Lifetime Mortgage?

In Conclusion

In case a question like “Is equity release a good idea?” raises in your head, the short answer is that definitely it is an excellent financial plan. However, before you make your ultimate decision, make sure that you consider the advantages of claiming the equity release plan, the impact it’ll have on your life, and other alternatives available.

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How Much Can You Release?

Most people are using Equity Release as a means of retaining the use of their house while also obtaining a lump sum or a steady stream of income. Get matched with an expert and check your eligibility for equity release options.

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