Equity release explained:
If you're facing a pension shortfall, need to meet an unexpected expense or want to fund a retirement treat, equity release is undeniably attractive. It allows you to tap into the wealth you've accumulated in your property without the hassle of having to move.
Equity release doesn’t come cheap, however. A Lifetime Mortgage can cost almost four times what you borrow after 20 years, while some home reversion schemes demand more than 70% of your home’s value for just a 20% advance.
Equity release: types of schemes
There are two main types of equity release: lifetime mortgages, which allow you to borrow money against your house; and home reversion, whereby you sell a share in your house.
With a lifetime mortgage, you borrow a proportion of your home's value. Interest is charged on the amount but nothing usually has to be paid back until you die or sell your home. The interest is compounded or 'rolled up' over the period of the loan, which means your debt would almost double in 11 years at current rates.
Home reversion schemes
With a home reversion scheme, you usually sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life if you wish. When you die or move into long-term care and the property is sold, the provider gets the same share of whatever your home sells for as repayment. For example, if you sold 50% of your property to the provider, it would get 50% of the sale price.
You can take out some lifetime mortgages from the age of 55, but home reversions are available only to people aged 65 or older. Some enhanced products offer more favourable terms if you're a smoker or have health problems that could decrease your life expectancy.
Equity release: Is it right for you?
Equity release schemes are designed to be a lifelong commitment, so if you change your mind, need to move house or want your equity for something else later, you could find yourself seriously restricted.
If you do take one out, you should consider checking to see if you can get a better deal once the early repayment charge period has ended. This is particularly true at a time of falling interest rates.
Our Equity Release Facility
Our Lifetime Mortgages convert equity in a customer’s home into Tax free Cash that can be used for any purpose.
Payment options include:
- An interest only payment plan, where the balance remains level.
- Roll up plan, with no monthly repayments, whereby interest is added to your account and repaid upon sale.
- Over 55
- Homeowner (Property Value over £70,000)
- No Income requirement
- No Credit checks
- Loan for any purpose
- Whole of Market search and quotation by fully qualified advisors
- FCA regulated lender panel meaning you:
- Can't lose your home
- Will never be in negative equity
- Can move house whenever you wish
- Your interest is protected by solicitors
- Converting home equity into cash reduces the value of the estate which can reduce the Inheritance Tax payable by beneficiaries
Equity release alternatives
There are several alternatives to equity release that may be more suitable, depending on your circumstances:
- Unsecured loans: If the sum you want to borrow is small and you can meet repayments out of retirement income, it might be cheaper to take out an unsecured personal loan.
- Mortgage extensions: If you haven't paid off an existing mortgage by the time you retire, it may be possible for your current lender to extend the term for another five or 10 years. Not all lenders will deal with those aged over 65.
- Downsizing: If you need to release a substantial sum, selling your house and moving somewhere smaller will almost always let you keep more. The costs can be high, with agent fees, removal costs and stamp duty to consider.
- Benefits and grants: Those on a low income who are borrowing for home improvements or conversions to deal with disability may qualify for local authority grants
Equity release advice
Tips for choosing the right equity release scheme
- Speak to Countrywide Money before deciding whether to take out an equity release scheme and get independent legal advice.
- We can explore other options to find out how equity release would affect your entitlement to state benefits.
- You can borrow the minimum amount you need to or choose a drawdown scheme to give you the option to borrow money as and when you need it.
- We have schemes that lets you make interest payments each month.
- We can help you choose a scheme with no early repayment charges or ones that apply only for a limited period.