Equity release is a way for over 55’s to unlock the value of their property and turn it into a cash lump sum. It is now regulated by the Financial Conduct Authority and operates under tight controls.
What options do I have?
Broadly, there are two types of equity release scheme – home reversion and lifetime mortgage, with many options within these.
Home reversion plans are for over 65’s. You sell a proportion of your property to the provider and retain the right to remain in the property, without interference from the plan provider, until you die or move into long term residential care. You can receive the value you released in a tax free lump sum or regular income. When the property is sold, the proceeds are shared according to the proportions of ownership agreed at the outset.
A lifetime mortgage is a long term mortgage with no compulsory repayments. Instead, interest is added to the balance of the loan and builds up until you sell the property when it is repaid. Some lifetime mortgages also offer the opportunity to make repayments to stop the compound effect of interest roll up. Any remaining balance from the sale is paid to you or your estate.
Will I risk losing my home or leaving a debt to my estate?
No, as long as you use a lender that is a member of the Equity Release Council, they will provide a ‘no negative equity guarantee’. This means if the amount owing is more than the property value, it will never become a debt to you, or your estate, nor will you be forced to sell the property.
What about my next of kin and their inheritance?
We strongly recommend that you consult with your family prior to entering into any equity release plan. It can be a shock for family members to find that their inheritance is significantly less than they had anticipated because the equity release loan has to be paid out of the proceeds of the property sale.
If you’d like to know more, we are local, qualified equity release advisers, regulated by the FCA, and only use providers that are members of the Equity Release Council. Call us for a chat on 01208 223912 or drop in to make an appointment.
This is an opinion based article and does not constitute financial advice. Davidsons is authorised and regulated by the Financial Conduct Authority.