“Boost your retirement income and lifestyle with Equity Release”

Unfortunately…making ends meet is already a daily challenge for millions of retired Britons with the issues surrounding pensions and rising living costs.

However, many retired people who manage on a small pension and limited savings are also living in properties which have soared in value in recent years. This scenario is known ‘Asset Rich, Cash Poor’ or in other words they live in a property worth a lot of money but at the same time don’t have a great deal of income to live on.

Equity release plans (also called lifetime mortgages, home reversion or home income plans) help to reverse this scenario by allowing homeowners with little of no mortgage to release cash to spend as they please.

Whether its to buy that new car, to pay for a holiday or home improvements, or simply to make daily life more comfortable. These schemes essentially allow you to borrow money against the value of your home, with the debt being repaid from the sale proceeds after your death

How Equity Release Plans Work

While there are a range of different schemes offering lump sums and/or regular income, they all work on the same principle: they lend you a part of your home’s value in return for a share of the proceeds when you die.

In most cases you will need to be at least 60 years old, have no outstanding mortgage (or you will need to use the equity release money to pay off the existing mortgage), and own a property in a reasonable condition.

Equity release plans can be complicated products and are a major step for many people. Your house is almost certainly the most expensive asset you own; it is also your home. Good advice is therefore key.

Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, both recommend getting independent financial advice before proceeding to see if equity release is really the best option for you and to help find the right type of scheme.

Eternal Growth are unable to provide you directly with equity release advice. We can however, introduce you to an authorised and regulated Financial Adviser who can provide you with specialist advice in this area. Please complete the enquiry form from the link below and we will ensure they will get back to you to discuss the most appropriate product for you!

Equity Release Advice
If you would like an appointment with a qualified adviser to discuss your options and find out how equity release can benefit you, call us on 01522 540555 or simply fill in the enquiry form

The main benefits of Equity Release plans

• They can give a lump sum, a regular income or both. The lump sum could be tens of thousands of pounds; the income boost might be worth as much as a hundred pounds a month or even more.
• Money released from the value of your principle residence is free of tax, although if the cash is then invested there may be tax to pay on any income or growth.
• You don’t have to move house or sell your home to unlock equity. With reputable equity release schemes there is a rock-solid guarantee that you will be able to continue to live in and enjoy your home until the day you die – and in many cases still be able to leave something of the property’s value to your family.
• Of course, if you don’t have children or family to leave your property to, then equity release might seem an even more attractive concept.
• They can also be a way of cutting inheritance tax bills. Equity release plans are a perfectly legal way of mitigating inheritance tax. They could be used, for example, to give a child or grandchild the deposit to buy their own property.
• They can also be used to pay for care bills without having to sell up at what can be a traumatic enough time.

Types of Equity Release schemes.

Here are the main equity release schemes available and their benefits

Home Reversion Schemes

You sell your home or a share of it to a reversion company for a lump sum or in return for a monthly income (or a combination of both) with the right to continue living in your home rent-free (or sometimes for a nominal rent) for the rest of your life.

When the property is sold – usually when you die – the reversion company gets its payout. If, for example, you sold 50% of your property to the reversion company, it gets 50% of the proceeds – including any growth. If you sold 25% of your property, it gets 25% of the proceeds, and so on.

In addition, the reversion company will also only pay you a percentage of the current market value for the share of your property it buys. This is because you get to carry on living in the property until you die, and the company may have to wait years for its return.

If you sell all of your property to the reversion company, for example, you will typically get between 30% and 50% of its current value. It will rarely be more than 60%. The actual figure will depend on your age (and your partner’s). Older people will get more, and men get more than women – because of differences in how long they are expected to live.

Main benefits

• No ongoing repayments to make, the reversion company makes all of its money when the property is sold.
• You know at outset what share of your home (if not its value) you will be leaving to your family.
• You continue to share in any rise in the value of your property (unless you have sold its entire value).
• You can take extra cash advances, depending on the amount you originally took.
• If you are a smoker or have a serious illness, you may be able to get a bigger payment.
  

Interest-only Mortgages

You borrow a lump sum secured against the value of your home. You pay interest each month (which you need to make sure you can afford), but you have a lump sum to spend as you wish. The capital is eventually repaid out of the sale proceeds.

Main benefits

• The amount you owe is fixed so any increase in the value of your home belongs to you or your family.
• You can usually borrow at a fixed rate so you know exactly what you have to pay every month.

Home Income Plans

These used to be the most popular type of equity release plans. You take out a mortgage against your home and use the money to buy an annuity (just like a pension) which guarantees you an income for life (normally fixed at outset, so will be eroded by inflation). Mortgage payments are deducted from this monthly income, although the original capital is only repaid from the sale proceeds, normally after you die.

Main benefits

• Regular income for life, and the mortgage interest is deducted automatically.
• The amount you owe is fixed and any increase in the value of your home belongs to you or your family.

Lifetime Mortgages

The lender gives you a lump sum or monthly income (or both). You pay nothing – the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid out of the proceeds from the sale of the property after you die.

How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow. Generally, you will not be advanced more than 50% of the value of the property.

Main benefits

• No interest payable while you are alive, so you will get a higher income for the same sized loan than with an interest-only mortgage or home income plan.
• Most loans are fixed-interest, so reducing risk.
• Plans are available to people as young as 55 from certain providers.
• The provider of a lifetime mortgage will be authorised and regulated by the Financial Services Authority.

Important Points to Consider…

Equity release plans will also reduce what your family will inherit and while it should ultimately be your choice whether to sign up to a scheme, it is probably a good idea to discuss it with close family members and/or anyone who might have expected to inherit your home. This may help avoid any unpleasantness or misunderstandings.

If the property has been a family home for a long time, bear in mind that your children or other relatives may also have an emotional attachment to it. They may even have been thinking of living in the property after you die.

Children or other relatives may be prepared to help you out financially instead of you taking out an equity release plan.

You may have other assets or investments which could boost your income or give you the lump sum you need.

Consider, too, whether moving to a less expensive property might be a better way of releasing money tied up in your home.

Avoid Risk with Guarantees and Peace of Mind

Look for plans carrying the SHIP logo (i.e. Safe Home Income Plans). SHIP is an industry body set up to promote safe equity release schemes. Companies who are members provide a number of guarantees, including ~

• The right to remain in your home for as long as you choose
• The freedom to move to another property, without financial penalty
• You will never owe more than your properties value

SHIP Code of Conduct

• The members of SHIP agree to provide fair, simple and complete presentation of their plans. The benefits, obligations, variables and limitations must be clearly set out in their literature, including all costs which the applicant has to bear in setting up the scheme, the position on moving, the tax situation and the effect of changes in house values.
• The client's legal work will always be performed by the solicitor of his or her choice. In all cases, prior to the completion of the plan the solicitor will be provided with full details of the benefits the client will receive. The solicitor will be required to sign a certificate to the effect that the scheme has been explained to the client.
• The SHIP certificate will clearly state the main cost to the householder's assets and estate e.g. how the loan amount will change or whether part or all of the property is being sold.
• All SHIP plans carry a "no negative equity" guarantee i.e. you will never owe more than the value of your home.

Frequently Asked Questions

Q. If i die will my partner be able to continue living in the house?
A. Of course. Repayment of the loan (i.e. by selling your property) will only happen on the death or moving into long term care of the last surviving borrower.

Q. If the interest is added, won’t it eat up all the equity and my children’s future inheritance?
A. It is possible that’s why there is a no negative equity guarantee, but also very unlikely. Consider this, although the outstanding balance will always increase as the interest is added, historically, property on average grows in value at a quicker rate than the interest can accrue, so there is even a chance that the equity will increase, not decrease. This is why its always recommended to discuss with your family first.

Q. What if I want to move house?
A. You have the freedom to move house and continue to enjoy the benefits of equity release in your new home

Q. What are the costs involved?
A. The costs are similar to taking out a standard mortgage, there is a survey fee as the lender will need to value your property plus you will have legal fees and there is usually an arrangement fee. Generally all the related costs can be factored into the money released so you’re not having to pay them from your own pocket.

Q. Can I use my own solicitor?
A. Yes, you can use any solicitor you choose provided they deal with equity release transactions. Alternatively, the lender will recommend suitable solicitors in your area for you to choose one.

Q. How long has Equity Release been around?
A. It’s actually not something new as many believe as the original schemes began way back in 1965. Recent years have seen a huge upsurge in equity release turning it into a multi billion pound industry with more and more lenders becoming involved.

To understand the features and risks ask for a personalised illustration. An equity release plan will reduce the value of your estate, will not be suitable for everyone and may afffect your entitlement to state benefits. An equity release scheme is a complex legal arrangement and expert independent legal advice should always be obtained before entering into an agreement.

Equity Release Advice
If you would like us to put you in touch with a qualified equity release adviser to discuss your options and find out how equity release can benefit you, call us on 01522 540555 or simply fill in the enquiry form