Equity release is a way of unlocking a proportion of the equity, that you have in your home in exchange for a tax-free one-off, or series of, lump sums – without having to move home. People release equity from their homes for a variety of reasons and there are no restrictions as to how the money is used – as long as it is for legal purposes. Before entering into equity release, the full range of alternative options should be considered, for example: other available assets, downsizing, borrowing from family. Once the decision is made, there are then different types of equity release available and professional advice must be taken to ensure that you use the most suitable option for your circumstances and objectives.
A lifetime mortgage secures a loan against your property, providing you with a tax-free cash lump sum or a regular income to spend as you wish. Interest is added to the loan throughout your lifetime, accruing at a fixed or variable rate. The loan plus interest is eventually paid back when the home is sold which could be when you move into long term care, or when you and your partner die. Subject to your age you can typically release between 18-50% of the value of your home with a lifetime mortgage. 'Lifetime Drawdown’ mortgages are a variation of the standard lifetime mortgage, the main difference being you decide on a maximum amount of equity you want to release, and 'drawdown' the cash in stages as and when required.
With a home income plan, equity is released through a lifetime mortgage or a home reversion plan and is automatically invested into an annuity that is built into the plan, to generate an income for life. A cash lump sum may be available in addition to an income, but the amount may be restricted. An annuity is a plan that guarantees a series of payments in exchange for a cash lump sum. The income you receive will depend on prevailing annuity rates, your age at the outset and your gender. The advantages and disadvantages of home income plans largely depend on whether the money is released through a lifetime mortgage or a reversion plan, however annuities have their own set of pros and cons:
With this plan you sell part of or your entire home to a reversion plan company in exchange for a tax-free cash lump sum and a guaranteed lifetime lease with no monthly repayments to meet. You can stay in your home either rent free or by paying a nominal rent for as long as you choose and you can guarantee an inheritance to your beneficiaries. Both you and the reversion scheme company share in any increase in your property's value, providing you have not exchanged 100% of its value.
A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up the repayments on your mortgage or other debt secured on it. Most forms of buy-to-let mortgages are not regulated by the Financial Services Authority.
Advice regarding equity release requires specialist qualifications and you should ensure that your adviser holds these qualifications before engaging with them. Our advisers hold qualifications and experience in this area and can guide you through all the options and solutions available to help you achieve your goals.