What is Equity Release, and is it suitable for me?

What is Equity Release? 

If you have paid off most or all of your existing mortgage or are mortgage-free, equity release may be an option worth considering. It allows you to borrow against the value of your home in the form of a loan, where funds can be accessed as a one lump sum payment or an initial borrowing with a cash facility to borrow more in the future, subject to the lender's terms and conditions.

Equity release loans have a lot of flexibility, especially concerning repayment. An equity release loan is repaid in the event of death, a move into long-term care/sheltered accommodation or once the homeowner moves to alternative accommodation. Equity release can be transferred to another property subject to the property meeting the lender's lending criteria. The homeowner also retains full legal ownership of the property, enabling them to live there for as long as they wish (subject to complying with lender requirements).

The interest with equity release loans is set at a fixed rate, calculated daily, added monthly, and rolled up annually on the anniversary of completing the mortgage.

Is Equity Release right for you? 

When deciding whether equity release is the right option for you, it often comes down to assessing your personal circumstances. Equity release isn't suitable for everyone and has potential financial risks. Therefore, we always advise clients to consider all aspects to ensure equity release is the right product for them.

Below we have listed some key areas of equity release to consider: 

• Potential impact on receiving state benefits - Receiving a lump sum or regular income from an equity release scheme may affect your entitlement to means-tested welfare benefits and services, now or in the future. For example, it may affect your eligibility to receive income support, pension credit, council tax benefit and local authority financial support towards the cost of care services.
• Inheritance and beneficiaries – Releasing equity from the property will diminish the value of your estate and the amount your beneficiaries will inherit upon your death. It's the opposite of a conventional mortgage, as the debt will not reduce over time.
• Tax implications - In most circumstances, the equity released from the property will be exempt from Capital Gains Tax, provided certain conditions are satisfied. There is a total exemption where the gain is on the disposal of a property that has been your sole or main residence throughout your ownership. Raising a lump sum through an equity release scheme and acquiring an annuity, gifting all or part of the sum away, or acquiring a long-term care insurance product may reduce or eliminate liability to Inheritance Tax. Any income from a lump sum investment released through an equity release scheme may be subject to Income Tax. You should seek specialist advice on your tax position before proceeding.
• Interest rates - The interest rates on an equity release loan are fixed for the entire lifetime of the mortgage. Taking out an equity release product when interest rates are low could be advantageous, as your loan will remain the same even when interest rates rise. It ultimately provides you with stability for the entire lifetime of the loan.
• Early Repayment Charge – A penalty is payable if you repay your mortgage within the specified period. The charge reduces over time, but if you only want the mortgage for a short period, you may have to pay a penalty to make your repayment.  

The key benefits of Equity Release:

• No monthly repayments
• Fixed interest rate for the duration of the mortgage 
• Equity is paid as a lump sum, with the option to borrow more in many cases
• You can spend the money in any way you wish
• You can have the mortgage for as long as you need; there is no fixed term.
• You can transfer the mortgage to a new property if you wish to move (provided it meets the lenders lending criteria)
• You retain full legal ownership and can stay in your home for as long as you want
• Lenders offer a no negative equity guarantee. This means the amount you have to repay to the lender will never exceed the sale price of the property (as long as the property is sold for market value)

Contact us for help and advice

If you have any questions or want to learn more about equity release, please contact our Equity Release Specialist, Kiri Saunders-Brown, in our Residential Property team. 

Kiri is a member of the Equity Release Council. She is qualified to provide independent advice and act on your behalf when obtaining an equity release mortgage. To book a face-to-face meeting or home appointment, you can contact Kiri and her team using the contact information below. 

• Tel: 023 8063 9311
• Email: enquiries@warnergoodman.co.uk