A foreword about equity release
Equity release has come a long way since regulation in 2007, as the UK’s 55+ population seek to safely take advantage of their biggest asset to fund their ambitions.
This guide will help to simplify the government regulated equity release plans without taking away any of the detail and information that will help you make your decision.
Lifelong aspirations, debt-clearance, income top-ups or family matters may be the reason you have enquired about equity release. Now it is time to see if equity release is the right way to achieve your aims.
This guide will bring the new money saving features to life using examples based on industry facts so that you can understand exactly how equity release works. Should you choose to proceed we can put you in touch with an award winning equity release specialist who can expertly take your case from start to finish.
What is equity release?
Forget all you know about equity release. This guide will talk you through the government regulated equity release plans called Lifetime Mortgages. Designed for people aged 55 and over, Lifetime Mortgages are partly responsible for equity release sales rocketing up 49% since 2012.
You own your property, are asset-rich and want instant, on-demand access to this wealth in a flexible, safe way without having to sell your property and move.
There are plans where you can take as little as £10,000 tax-free and leave more funds in reserve for when you need it. With all plans your property remains your own; you have just borrowed against it, with some plans allowing you to pay some of the money back into your property should you choose to.
Things to watch out for are state benefits. If you are in receipt of these, having money in the bank may affect them. We can check on this for you before proceeding. Also, by taking money out of your property, there will be less left later when you want to leave some money in your will. It is about finding a balance between what you want now and what you want to leave.
There are fixed and variable interest rates available. The fixed rates are fixed for life so you can be sure of what you are being charged. Those who remember mortgage rates in the mid-teens know the value of a fixed rate.
This guide will provide you with in-depth information and examples to show you how equity release can work for you.
A few steps are all that’s required to move forward:
• Imagine what you could use the extra money to do
• Call us because we can give you arrange for you to receive live, personalised figures
• You will then know if you can achieve your goals and we can help you get started immediately
This is a Lifetime Mortgage which may impact the value of an estate and could affect entitlement to means tested state benefits. To understand the features and risks, ask for a Personalised Illustration. Only if your case completes will you be charged an advice fee, currently £1,847.
What are the guarantees?
Modern Lifetime Mortgages have a
number of in-built customer safeguards.
These guarantees ensure you get the best deal that is right for you and your family.
No matter how much you take with this plan, you will never owe more than the value of your property.
You can never pass on any debt to your estate with these plans.
If you want to move and don’t want to repay the money, you can transfer your plan to another suitable property.
If you wanted to repay the full amount, you can do, though in some cases there may be an additional charge for doing so. Some plans offer partial repayment options with no charge for doing so.
You own your home, like with any other mortgage.
A solicitor of your choosing will talk you through the terms and conditions in detail before you commit to anything or incur any costs.
Anyone who recommends you take this plan will have to be regulated by the government body called the Financial Conduct Authority, and have passed specialist qualifications and exams.
Even after you make an application, you can cancel anytime up to the day of completion. There is no obligation and no pressure to proceed.
“It’s nice to see their inheritance in action. Because of equity release, my granddaughters don’t want for anything when it comes to education.”
Types of equity release
There are three main types of equity release that we recommend. We do not advise on home reversion plans. We only advise on lifetime mortgages where you retain 100% ownership and the deeds to your property.
1) Roll-Up Lifetime Mortgage
- You receive a cash lump sum and maintain 100% home ownership.
- There are no monthly repayments to make.
- Interest will accrue on the amount of cash you choose to release.
- The interest and lump sum amount will be paid off when the last home owner on the deeds dies or moves into permanent long term care.
- The estate will usually have 12 months to sell the property without interference from the lender.
2) Drawdown Lifetime Mortgage
- Works the same as a Roll-Up Lifetime Mortgage except you can choose to release the money flexibly, as and when you need it.
- You can choose to have money in a reserve account, ready to drawdown.
- Interest will not accrue on the money held in reserve until you have released it.
- Allows you to minimise the interest charged and have the safety of a cash reserve, ready to draw upon when needed.
3) Flexible Lifetime Mortgage
- As with the Roll-up and Drawdown Lifetime Mortgages, you receive a cash lump sum and maintain 100% home ownership.
- Unlike the others, though, you can choose to make voluntary payments of up to 10% of the initial amount borrowed each year to keep the balance of the plan down.
- The minimum repayment you can make at a time is £500 and the first repayment can only be made after you have had the plan for a year.
- You are able to make up to four payments per calendar year.
- You can decide when you make the payments.
- If you decide you don’t want to make any payments at all, you don’t have to.
This is a Lifetime Mortgage. To understand the features and risks, ask for a Personalised Illustration.
“I wanted to pay my debts and then create a little area of my garden that looked pretty and could be enjoyed in all seasons. I did just that, thanks a million.”
How can equity release help you?
- How would it feel to have the money to take that holiday you’ve always dreamed of, perhaps visiting family that you haven’t seen for years?
- You may want to buy a new, efficient, reliable car that you can trust to get you around without guzzling gallons.
- Imagine the difference the money could make in every day life, helping with travel, food, bills and other living expenses that seem to go up and up.
- You may want to make home improvements, such as putting up a conservatory, landscaping the garden, installing a more modern kitchen or extending the home to accommodate friends and family.
- You can become repayment mortgage-free, meaning you can reduce your monthly outgoings and free up cash for more rewarding things.
- Like more and more people you may want to release equity to help support your family, children or grandchildren as and when they need the help instead of the more traditional route of waiting to leave an inheritance. The advantage of this is that you can see and enjoy the help you have provided.
- You may want to use equity release as a tool in a more comprehensive inheritance tax strategy. We can put you in touch with qualified advisers who can help plan to reduce inheritance tax. The Financial Conduct Authority do not regulate Inheritance Tax Planning.
Points to Consider
- Releasing equity from your home could affect your entitlement to means tested state benefits. An adviser will be able to explain exactly what this means to you personally and can then provide responsible advice accordingly. A drawdown lifetime mortgage can often be used to ensure you don’t jeopardise your benefits.
- If you invest the money you release then your tax position could be affected and the investment return may be less than the interest charged on the equity released.
- By taking money out of your property now, there will be less available for your estate over time. Try to find a balance between current and future needs.
- It’s important to remember that equity release doesn’t come with any required monthly payments, meaning you can’t face repossession for missing payments like you do with a regular mortgage.
- A condition of a Lifetime Mortgage is that any existing mortgage or secured loans on your property are repaid upon completion of a plan. Many elect to use their released equity to do this.
“My life has changed dramatically. I had a fixed income and it wasn’t enough. I considered moving to a cheaper home but love where I am and there aren’t many desirable places that are much cheaper. Equity release gave me the chance to stay in my home, own it 100% and still have enough money to do the things in retirement that I have worked hard to do. The way you relayed information was a 10/10 and I’d recommend you to anybody.”
The price of living on an island
UK land value is increasingly valuable as population density rises. This is reflected in the forecast property price growth which could see house prices reach an average of £900k by 2034.1 The equity in these properties will play a significant role in retirement planning as pensions and savings no longer suffice in maintaining a quality lifestyle.
Example Of House Price Growth & Equity Release
Average UK House Price Prediction
The properties that out-earned a pension
Recent research reveals that the average pension pot could be empty 6 years short of the average full retirement2. This highlights the importance of planning ahead for your retirement. By building up the equity in your home, you have been doing the right thing.
Now, many homeowners consider the value in their property as a part of their retirement finances. After all, paying off your mortgage over the years has been like a savings plan. With a lifetime mortgage, you are able to use your property wealth to your advantage..
“We wanted the extra to get away on a few city breaks when the time allowed. There is still an amazing amount we have yet to see, even just in the UK! ”
Mr & Mrs Jack, Edinburgh.
Became mortgage free and were able to help their children get on the property ladder.
Mr and Mrs Jack live in a house they love in Edinburgh. Mrs Jack was freshly retired and started to think of ways of freeing up their income. They had recently re-mortgaged to help their son and daughter pay for their Masters Degrees, so the most obvious thing to do was to look into ways of clearing their remaining mortgage.
Initially Mrs Jack looked into selling up, but as their son still lived with them they would still need a house big enough for the family. They soon realised that not only would there not be much to gain from downsizing, but they also really didn’t want to move from the home they loved.
‘We phoned up, found them extremely helpful and booked an appointment with a local adviser. Now, normally I’m very sceptical about people who promise you Elysium, but our adviser was really down to Earth, my kind of guy and we got on extremely well.’
‘He got back to us very quickly with figures that we liked the look of, then my daughter announced that she was getting married and my son decided that he would also like to buy a little flat.’
‘We were able to give both the children a share after discussing the matter with them. We told them that there won’t be as much at the end of the day for you but if you want a hike onto the ladder now then this is the way to do it and of course they thought it was a great idea, as did we.’
‘We also had some money left over to undertake some home improvements which will only add value to the house – and they’ve been significant, we’ve had new windows and just last week we had a new boiler, new radiators, we’ve had the house decorated, had new tiling done and a new shower put in and so things have worked very well for us.’
‘What we’re hoping to do now is use the rest to finance my daughter’s wedding next year and then take a nice holiday, just to sit back, take a deep breath and relax.’
The Jacks took their equity as an initial cash lump sum with a drawdown facility. This meant that when their daughter announced her engagement, they knew they had the funds reserved to pay for the wedding and for anything else that came their way.
“I felt such a great relief when I finally cleared my mortgage and credit cards. Debt payments are no more and I no longer fear the post. ”
Examples of equity release
Roll-Up Lifetime Mortgage
- Sally was 55, her husband John was 62 and their house was worth £200,000.
- They borrowed £25,000 to pay off bills and buy a car.
- The interest rate was fixed for life and the interest added to the loan each year.
Sally outlived her husband but died 20 years after taking out the equity release plan.
- Their house has increased in value at a yearly rate of 2.95% (only half the average yearly house price growth for the years 1990-20105).
- Their house is now worth £360,536.
- They made no monthly repayments during their lifetime and so the interest has rolled up.
- Sally passed away and their estate sold the property. They repaid the equity release provider the £25,000 plus the interest and the rest of the money went to their family as per the demands of their will.
Drawdown Lifetime Mortgage
- Michael was 71, his wife Mary was 69 and their house was worth £400,000.
- They borrowed £40,000 to gift to family using equity release.
- They were able to reserve £20,000 in a drawdown facility to call upon in the future if needed.
- They received an interest rate that was fixed for life.
- After 5 years, they drew £5,000 from their drawdown reserve and when Michael died 10 years after taking the plan out, Mary drew £15,000.
- Mary remained in the house until she passed away 15 years after taking out the plan.
- Their house has increased in value at a yearly rate of 2.95% (only half the average yearly house price growth for the years 1990-20105) and was worth£622,299 when Mary died.
- They made no monthly repayments during their lifetime and the interest was only ever charged on the money after it was actually drawn.
- Their estate sold the property and repaid the equity release provider the money borrowed plus interest. The money remaining went to the estate as per the demands of Mary and Michael’s will.
Protected Equity Guarantee
- James was a 62 year old widower.
- James’s house was worth £300,000.
- James released £30,000 from his property and chose the protected equity plan where he ringfenced 50% of his property from any effects of the equity release plan.
- The house had decreased in value at a yearly rate of 1% and James died 25 years later when the house was worth £233,346.
- As James had opted to protect his equity, he only owed 50% of the property which worked out at £116,673.
- This type of plan provides peace of mind that no matter how long the plan lasts, or where house prices go in the future, there is still a large percentage of equity that you can leave as inheritance.
- He made no monthly repayments during his lifetime and so the interest has rolled up.
- James passed away and his estate sold the property. They repaid the equity release provider the £30,000 plus the interest and the rest of the money went to his family as per the demands of the will.
Please note that this is only an example using half the previous years’ actual growth as a comparison and the value of your house could go down or not increase at the same rate as it previously had. Recommended plans guarantee you will never owe more than the value of your home.
5 Nationwide House Price Index, 2015.
Our assurances & safeguards
We give our customers these guarantees:
You will have the safety net of advice that is always reviewed and given a second opinion.
We will work entirely at your pace and you will never be under any obligations to proceed.
Your enquiry will be dealt with promptly, courteously and confidentially.
Your questions will be answered thoroughly and expertly. We take our training seriously.
Plans will be laid out clearly with respect shown to all alternatives you may have.
Your personal financial circumstances will be taken into account and plans will be recommended accordingly. We only charge fees for our advice if you go through with our recommendations.
We will offer you plans that allow you to guarantee an inheritance to your estate.
We provide free consultations to discuss your needs, priorities and preferences.
We want our enquirers to be informed. Informed enquirers make satisfied customers.
A face-to-face service
Now that you’ve read our informative guide, you can benefit from our no-obligation face-to-face advice service.
It is one thing to read about it all, but your unique situation demands a personalised approach. There is nothing like having someone on hand to talk you through everything.
You’ll be in the comfort of your home, explaining to our relaxed, mature, qualified and regulated advisers what you would like to achieve.
Our knowledgeable specialists offer expert advice you can trust, they answer your most probing questions about future downsizing or care plans, the impact on inheritance, the type of plan that suits you, how much money you should take and what provisions you need to make for the future.
You’ll then be free to make your decision based on high quality advice and lots of clear information that you understand.
Once the meeting is complete, they will leave you with a Personalised Illustration, a business card and all the necessary documents to proceed. If you decide to proceed, you can call and arrange another free visit to help you complete the application.
You’re only charged a fee for all of this should you complete a plan and payment is not expected until you receive your money. If you decide it’s not right for you, you won’t be charged a thing for our time. It’s an industry we’re proud of and we want you to know all about it.
The next steps…
- Call us to be put in touch with a trusted specialist.
- After an introductory phone call, an appointment will be booked with a qualified adviser who is local to you at a time and place convenient to you. Most people choose to hold the appointment at home.
- You’ll receive information on your adviser’s background and a picture to help you identify them, they’ll also give you an introduction call beforehand.
- On the day, the adviser will explain the different types of equity release plans that are available.
- Family involvement is welcomed on the day of the appointment so the financial adviser can answer any questions they have too. Customers usually find it is best to get everyone in the room together.
- A recommendation will be made if equity release is right for you and if so, which plan is most suitable.
- If you choose to take up the recommendation, the specialists we use and trust have access to preferential deals and will arrange the plan from start to finish for you, ensuring it completes smoothly.
- If at any time before your plan completes you wish to cancel, you are free to do so and will not incur any fee.
We are in partnership with an award-winning equity release specialist who we trust to handle you unique case professionally and with the utmost care.
If you would like to be put in touch with them, simply call us and we will arrange for you to be contacted at a time convenient to you.