Equity release
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Equity Release FAQ’s

I think you’ll agree with me when I say…

There’s a lot to learn when it comes to equity release.

However, with the limited research options and expenses that come with consulting professional advice, getting the right information on equity release might be challenging.

Lucky for you, here is a comprehensive Q&A of the most frequently asked questions on equity release.

Hopefully, you will find the answer you’re looking for. If not, please be sure to click here and see how much equity you can release and chat with an expert for free.

Use our free Equity Release Calculator and see how much equity you could release »

Borrowing

Q: Who Qualifies for Equity Release?

A: Qualifying for equity release depends on the age of the youngest person on the title deeds & also your property criteria. Lifetime mortgages, for example, require you to have a minimum age of 55, whereas a home reversion plan’s minimum age is 65.

You must also

  • own your home,
  • or have it on a freehold basis,
  • or have 75 years or more remaining on your lease.
  • It also helps if your estate is of superior construction.

It’s also vital to keep in mind that the minimum property value acceptable in the equity release market is currently £70,000. 

Q: How Much Equity Can I Release?

A: The amount of equity you can release is dependent on:

  • the age of the youngest borrower,
  • the current value of your estate,
  •  if you have any pre-existing health issues.

You should, however, initially withdraw only the amount that you require.

It’s vital to remember that it will cost you interest to draw more capital than you need. It’s also unwise to withdraw equity exclusively for investment purposes.

If you need more money in the future, there are schemes like the drawdown lifetime mortgage, where you can take cash in stages, rather than all at once.

Q: How Many Times Can You Release Equity?

A: The frequency with which you can release equity depends on:

  • the terms of your existing lifetime mortgage,
  • the outstanding balance,
  • if the property value has increased since its inception.

Lenders will use a combination of you and your partner’s current age, the new property valuation, and the loan-to-value tables, to help them determine whether you can release any additional funds.

If not, then you can always consider alternative equity release plans.

Q: Do You Pay Tax on Equity Release?

A: No, you do not pay tax on equity release.

Equity release enables you as an asset-rich homeowner to unlock wealth from your estate in a large, lump sum or smaller amounts over an extended period.

While there are no tax implications, you will still have to pay interest, so it’s imperative that you fully comprehend all the consequences before taking out this type of scheme.

Q: Can You Release Equity with a Mortgage?

A: Yes, you can.

The advantage of a mortgage is in how it allows you to claim rights to bricks and mortar. It enables you to build up some equity in your name as the estate market value typically increases over time. 

However, you might find yourself struggling at some point being property rich but cash tight, and that’s where equity release comes into play.

It’s a lifetime mortgage scheme, which enables those aged 55+ to release money from their property to spend as needed, and even aid you in clearing your mortgage.

Q: Can I Use Equity Release to Pay Off a Mortgage?

A: Yes, you can.

However, with the equity you release, you must seek to repay your outstanding mortgage balance first.

Equity release must be the only charge listed against your home.

Q: Can You Pay Off Equity Release Early?

A: It depends on your plan provider.

Typically, equity release schemes are designed only to be paid back if you move into long-term care or die. It means that if the plan is repaid in full within the contract’s course, then an early repayment charge may arise depending on the scheme.

Q: Who Are the Equity Release Council?

A: The Equity Release Council (ERC) is a self-regulated non-profit organisation that specialises in all things equity release-related.

It was initially recognised as Safe Home Income Plans, or SHIP until it was re-launched in 2012 and broadened its reach from equity release to financial advisers.

Its roles include:

  • Offering you with all the information you might require on equity release and its products
  • Protecting you and the interests of consumers using or considering taking out an equity release
  • Raising awareness on how equity release might be an ideal option after retirement
  • Representing over 180 member companies and over 500 people in the equity release industry, from financial advisers and lenders to solicitors and surveyors.

Its members also have to abide by a strict code of conduct:

  • Consumers have a right to remain in the estate for life
  • Consumers will be offered clear, concise paperwork which includes all setup costs and changes in house values.
  • The consumer’s solicitor of choice steers any legal work. The solicitor is required to sign a certificate stating that the plan has been clarified and its clients comprehend the risks.
  • The client can move their plan to another property without penalties.
  • Equity Release Certificate defines the cost to the client’s asset and estate.
  • Equity Release carries a “NO NEGATIVE EQUITY GUARANTEE.

Q: Can You Switch Your Equity Release Plan?

A: Probably.

Again, this is dependent on the scheme of your choice, its current balance, and if any early repayment charges apply. You first have to ensure that you conduct a switch plan analysis to check if it will be beneficial to make the transfer.

According to most plan providers though, switching equity release plans can be for three reasons –

  1. To attain a lower interest rate – swapping to a lower interest rate can hypothetically save your property interest over the longer term.
  2. To borrow additional funds – if your existing plan provider cannot, or will not offer additional capital, you may need to look for an alternative lender that will release more cash.
  3. To gain additional features – where old schemes had limited flexibility, by swapping plans today, you can gain access to a host of new options.

If you have an existing equity release, it’s always a good idea to see what the market is currently offering & consider switching to another plan if its terms are more favourable.

You & Your Kin

Q: How Does Equity Release Affect Benefits?

A: Equity release may not be right for everyone. It can hurt your claim to state benefits, and it lowers the value of your estate.  It can affect your means-tested benefits like pension credit, savings credit, and council tax benefits.

It’s, therefore, vital that you fully understand your circumstances. You can also always check what you’re entitled to with your Benefits Agency, the Citizens Advice, or your Local Authority.

Q: How Does Equity Release Affect Inheritance Tax (IHT)?

A: It may reduce how much inheritance tax you have to pay (your inheritance tax liability) depending on how you use the capital you release.

There may be more fitting ways of reducing your liability, and so it’s crucial to seek financial guidance from a tax specialist so that they can offer you proper advice on inheritance tax planning.

Nevertheless, if you wish to get more advice from a tax expert, click here to see how much equity you can release and chat with an expert for free.

Q: What Happens When Someone Dies?

A: If you took out the equity with your spouse, the estate is usually sold once the last remaining borrower has died. If you took it on your own, then when you pass away, the lenders are obliged to sell your property.

With a lifetime mortgage, the capital that is made from the transaction is used to pay off the initial loan, plus any interest that has built up. Any money left over will form part of your property. If there is sufficient money in your estate to repay the loan, or if your family members wish to repay the loan, the lender does not have to put your property up for sale.

With a home reversion plan, however, part of the property will be the reversion company’s. If any part of the estate doesn’t belong to the home reversion company, then the cash from that portion will be paid to your home. In some circumstances, the percentage sold can be repurchased by other funds in the estate or for example by family members –but it may be costly.

Equity release is one of the best financial decisions you can make to maintain your lifestyle after retirement. However, it can also be quite challenging to understand its form. So, if you did not find the answers you’re searching for, do not worry. You can click here for more information on how much equity you can release and chat with an expert for free.

How much money could you release?

An equity release plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.

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