I think you’ll agree with me when I say…
Trying to understand how equity release works can be confusing, especially if you do not have access to the right information. You may be wondering how does equity release works in uk?
Moreover, considering the numbers of hours researching, and the expenses that come with professional consultations, getting by this financial plan can be a daunting task.
Well, by checking out this guide, you can finally get to know this without breaking a sweat or your bank.
Unlocking the Equity Tied Up in Your Property
There are over ten ways to release equity1 from your estate. 40% of homeowners in the UK opt to sell up and downsize to a smaller home. But then again, what if you don’t want to move out of the family home you love – where you have made lots of happy memories over the years with your children?
That is when you turn to equity release.
Primarily, equity release is accessible to proprietors where the youngest spouse or partner on the deeds is at least 55, or in other cases, 60.
It enables homeowners to raise tax-free cash from the equity tied up in their property. The amount that you can release depends on an age-related ascending percentage of the value of the estate. In other words, the older you are, the more cash you can release!
For instance, if one is aged 65 is in perfect health, and has a property value of £500,000, you could get a maximum of 30% of the property value. It would then mean a maximum equity release of up to £150,000 with a plan provider like Aviva or LV.
It gets better:
Recently, equity release firms have introduced the impaired life schemes that provide ‘enhanced’ rates to those who are not as fit and healthy as they used to be, and these plans increase the percentage that you can withdraw from your reserve.
Consequently, if the same person is 65, but he/she was a smoker with high blood pressure, Type 2 diabetes and a history of heart attacks, it means that they could get more, probably from £180,000 up to £190,500 with the enhanced lifetime mortgage2 scheme.
More on the Workings of Equity Release Schemes
As previously mentioned, the minimum age for equity release is 55. Even if you still have a small mortgage on your home, you could still be eligible – the catch is this has to be the first thing to cross off on your ‘debts’ list once you release the cash.
When you have cleared your mortgage and have more cash, then you have the right to spend it as you wish – you won’t have to make any monthly repayments. You only have to pay back the loan (plus interest) when you decide to sell the house – which will typically be when you die or move out permanently (into long-term residential care).
How do equity release schemes work? There are different modes of releasing equity, but there are two primary plans: lifetime mortgages3 (the most popular option) and home reversions4 schemes, which you can find out more about in ‘Types of Equity Release Schemes.’
How Does Equity Release Work?
It’s a straightforward process.
When you’ve done in-depth research and carefully considered your options, then you can get the ball rolling on equity release and how does it work.
The process can vary from an individual to another, and lender to lender. However, you need to ensure that you’ve plenty of support along the way.
Here are the steps you can expect:
- First things first, to be sure that you’re eligible; you need to talk to an expert. You won’t have to take things any further if you don’t qualify.
- Consult your financial adviser5 – you can do this over the phone or in person. They will guide you with your questions appropriately in your decision and whether it’s the best solution for you. They will confirm the advice you will get to you in writing before you make any further decisions.
- Plan for a follow-up meeting – talk through the advice you got from your adviser. You will have the chance to ask any other burning questions you might have and make sure that you’re ready to proceed with the process.
- Fill in your application with the help of your adviser. The might even offer to submit the application on your behalf, and if the equity release company acknowledges it, then your provider will give you a valuation.
- Head to the solicitor’s office – talk to him/her about your offer and get independent legal advice. They will look at all the legal details and walk you through them. After they scrutinise the proposal and you accept, your equity release will be set up for you.
- Acquire your equity through your solicitor and finally get on with putting those plans into action.
All you have to do is to ensure that you’ve received proper guidance along the way, and when it’s done, you’ll have access to the cash you need for the retirement you deserve.
How Soon Can You Unlock the Cash From Your Home?
It varies from one plan provider to another. However, for most like Legal & General, the least number of weeks is around 8-12, from when they receive your application to the day your solicitor sends you your cash.
Like any other financial product, equity release is not something you should rush into. So, take your time, prudently consider your options and then make an informed decision. It would be best if you also kept in mind that taking out a lifetime mortgage scheme reduces your inheritance, so it would be wise to involve your family in your choice too.
That said, if you’ve got any questions or need more information on what equity release is, lifetime mortgages and home reversion plans, then be sure to click here not only see how much equity you can release but to talk with an expert for free!
Equity release is a financial product that offers you the right to retain the ownership of your home while also receiving a lump sum or recurrent income. The “catch” with this plan is that you have to repay the plan provider when you die or move into long-term care.
Learn More: What Is Equity Release?
Yes, equity release plans are a smart financial option. If you don’t want to move to a smaller apartment and receive some extra cash for your retirement projects, then you need to consider taking these plans out. Nonetheless, if you plan on leaving some inheritance to your kids, it might not be the ideal option for you.
Learn More: Is It A Good Idea?
Yes, you do. For lifetime mortgages, you repay the loan plus the interest accrued when you die or move into long-term care. However, the home reversion plan isn’t a loan, and so, the plan provider benefits from the sale proceeds of their share of your estate when you die.
Learn More: Equity Release Costs
Upon death, the equity release provider puts up your home for sale. The sale proceeds from the sale are used to repay your loan amount plus the accrued interest, for lifetime mortgages. With home reversion plans, the plan provider takes sale proceeds equal to their share of your property. Any remaining proceeds go to your family.
Learn More: How Does Equity Release Work
How much money could you release?
An equity release 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.