Equity Release

What is Equity Release?

It’s a way of releasing funds from the home you own without having to move. There are two types of equity release products:

Lifetime Mortgage

Lifetime mortgages are the most popular type of Equity Release plan (they total over 99% of plans). They are a form of mortgage, with a first legal charge on the property, but rather than having a fixed term of years, they run for the rest of your life. There are usually no repayments to make meaning the interest is added to the loan each month and compounds. However, a number of providers allow monthly interest to be paid or lump sum capital repayments for those wishing to control the future balance.

Home Reversion Plans

Home reversion plans work very differently as there is no interest element involved. With these schemes, you sell part or all of your property, in return for a tax-free lump sum, a regular income, or both. There is usually no rent to pay, and you receive a lifetime tenancy, meaning you can remain in your home for the rest of your life. These plans are less common, and you will no longer own 100% of your property as you have agreed to sell all (or a proportion) of your home to the reversion company.

We only offer lifetime mortgage advice subject to your circumstances. You can only apply for a lifetime mortgage at age 55 or older. A lifetime mortgage is a long-term loan secured against your home. When you (and your partner, if you’ve taken it out jointly) pass away or need to go into long-term care, the loan and any interest that’s built up is paid back to the loan provider normally using money from the sale of your home.

The Amount you can borrow is based on the following criteria rather than being assessed on an affordability basis like a normal mortgage.

  • Your age
  • Your health and lifestyle
  • What your home’s worth
  • The type of property you own and where it is located.
Check if you’re eligible for equity release

To apply for a lifetime mortgage, you need to:

  • Be aged 55 or over (for joint applications, you both need to be over 55).
  • Own a UK home (minimum property value and geographical exclusion may apply)
  • Want to borrow at least £15,000 (minimum and maximum borrowing multiples may apply).
  • Live permanently in your home. It must be your main residence and shouldn’t be unoccupied for more than six months at a time.
  • Be mortgage-free or have only a small mortgage left on your home. You’ll need to pay off any leftover mortgage with the money you’ve released from your home.

What are the pros and cons of equity release?

It’s important to look at every available financing option before you apply for a lifetime mortgage.

Pros
  • You’ll still own your home, you’re the full legal owner of the property, that doesn’t change.
  • You won’t be leaving your family or estate with the debt because of what’s called a no negative equity guarantee, your loved ones will never have to repay more than the money received from the sale of your property, provided that it is sold for the best price reasonably obtainable.
  • Many lenders tailor their interest rates to each individual application so the interest rate will be unique to your personal situation, and it’s fixed at the point of completion so it’ll never go up.
  • You will get the choice to take a one-off lump sum or a smaller cash sum with a cash reserve to dip in to.
  • You only pay interest on money you’ve borrowed, if your loan was set up with a cash reserve (drawdown facility), no interest will build up on money that hasn’t been used. When you withdraw it, you will have a new interest rate at the providers prevailing rates for each amount you take out, so your initial lump sum and any later withdrawals will have their own individual interest rates.
  • You can transfer your lifetime mortgage to a new home, as long as it’s a type of home the provider can lend on.
  • Should you move to another property later, you may be able to pay off your lifetime mortgage in full, with no early repayment charge, thanks to downsizing protection. (This normally applies automatically once you’ve had equity release with your lender for three years or more).
Cons
  • Even if you set aside a percentage of your home’s value for your loved ones, paying off the money you’ve released (plus any interest) will still mean you’re leaving them less in inheritance.
  • Taking money out of your home through a lifetime mortgage could have tax implications or affect whether you are eligible for certain welfare benefits.
  • You will be paying back a lot in interest because the accruing interest is added to your loan and the interest already added each year, the amount you owe goes up more quickly due to the interest compounding (paying interest on the interest)
  • A lifetime mortgage is designed to last for the rest of your life or until you need long-term care. If things change and you want to pay this off sooner, there may be a big early repayment charge.

If you’re not sure if Equity release is the right option for you, drop us an email to enquiries@mafel.co.uk and we’ll arrange for a specialist adviser to speak with you.