EquityDrive
Can you take money out of the equity of your house?
Equity Release has been around for many years. It has become more attractive over recent years because house and property prices have grown year on year by double digits – which is more impressive than many other investment tools.
Many people who bought houses in the 80s and 90s before the boom started had a small mortgage and now live in a property with a significant value. Many people over 55 also have grown up children who won’t be reliant on inheritance from a parent when they die. In fact, one could argue releasing some of the money and giving to your children as a deposit for a house would be more useful for the children now that waiting until both parents have died.
Realise ambitions
Some people have always had an ambition to buy a boat, caravan, holiday home etc. – why wish when you could release some of the money from your property? A good thing to remember is you may borrow a small sum and might find over the coming 15 years your house has increased in value by that amount meaning technically you’re no worse off.
With House prices rising in the UK by on average 10% each year there is a wealth of gold you live in called a home. When you are getting older you can unlock that gold for the right deal. Make sure you find the best deal.
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Here are some facts and stats about equity release. GO!
Although you should seek professional advice it’s also important to do your own research. GO!
See the types of equity release. GO!
See the pros and cons of equity release. GO!
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Facts About Equity Release
UK house prices have risen by an average of £22,023 since 2019, according to the ONS
Home ownership has been in decline in the United Kingdom, falling from an all-time high of 70.9% in 2003 to 63.9% in 2018.
557,000 Britons have used equity release in the past 20 years, releasing more than £32billion of cash
16% is how much house prices rose in 1987 under ‘right to buy’
During the first half of 2021, 35,860 customers unlocked more than £2.3bn
of workers now expect to be employed after their 70th birthday, up from only 17 per cent in 2010, according to Willis Towers Watson
557,000 Britons have used equity release in the past 20 years, releasing more than £32billion of cash
34% of home owners over 60 rely on a state pension as main source of income
Seek professional advice but also do your own research
In this Drive we show you the principles behind Equity Release, where to go to get advice and the different types of options. Equity release can be extremely advantageous but also can erode your hard-earned money if you don’t educate yourself to a degree, you can choose a person or company who can give you professional advice.
We can think of so many situations whereby people buy a product or service and implicitly trust the advisor or company and, in some instances, abdicate responsibility for taking out the service or product. The number of times we have heard people say; I didn’t have a clue what he was saying but I trusted his decision. Never sign anything unless you understand everything connected to the product or service, there’s a lot at stake.
Different Types of Equity Release
Equity Release is a way of getting at some of the wealth tied up in your property. Not only that if property prices continue to grow then each year this can have a positive impact on your situation. In the modern day the need for our children to receive a large inheritance is less. In fact, receiving cash earlier could have greater benefits; deposit for a house or support with grandchild care etc. There are two main types life mortgage and home reversion plan. In both cases the money is yours to do as you want and it can enhance yours or your family’s lifestyle.
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These were the first type of equity release, and their popularity has fallen and less companies now offer these.
You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
This is the most popular form of equity release. It’s a mortgage secured on your home with the amount borrowed calculated based on the youngest homeowner and the value of the property.
Often there are no repayments and the interest is ‘rolled up’ over the full term, so you pay nothing, but the interest is compounded and builds up. The loan is repaid when you die or move into a care home.
Some companies allow you draw down money at different times, and others allow you to pay off some or all of the interest as you go.
In all cases if you have poor health you will get better rates.
These are similar to an interest only mortgage, but
(i) the loan is paid off when you die or move into long term care
(ii)you just have to prove you can make the interest payments
There is no minimum age and you only pay the interest so monthly payments are lower. However, you have to prove you can afford the payments, and then keep them up, or your home is at risk, Your home is sold off once you die or go into care.
These are available from traditional mortgage lenders including banks and building societies.
I could do with more money in retirement, so I would but I would never consider equity release
Pros and cons of equity release
Equity Release is ideal for some people and not for others. It’s is not a decision to be rushed into and time needs to be taken with a sympathetic professional who not only engages yourselves but also considers the wider family. Making sure you get the best possible deal with the lowest charges is what most people are looking for. Using a whole of market provider who puts your interests first is paramount.
The consequences can be extreme, so this shouldn’t be considered lightly.
It is really important to make sure that you’ve involved the people who matter to you.
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- Equity release allows you to take out some of the money invested in your property especially if you have reduced pensions or there is no need to provide inheritance provisions for family
- Tax-free lump sum or smaller regular payments to supplement your income, and can continue to live in your home until you die or move.
- You can move to another property in the future, and transfer the equity release scheme. It will be subject to your new home meeting the property suitability criteria applicable at the time.
- With a lifetime mortgage, you continue to live in and keep ownership of your home.
- You can choose to either continue to pay the interest each month to avoid the mortgage increasing or simply allow the interest to be continually added to the amount borrowed. You can possibly sell some or all of your home ownership to provide a lump sum of money without needing to pay any rent.
- You may continue to benefit from any rise in the value of your property.
- Any money released is tax free
- In some instances a no negative equity guarantee offered by the Equity Release Council approved schemes means you can be assured that any debt you create, plus any ongoing interest which you add to the mortgage will never become more than the property’s future value when you die.
- Equity release schemes means borrowing against your property. This reduces the amount of your personal asset in the property and could mean less money for your children to inherit.
- Equity release potentially could affect your state benefits.
- With certain plans, the equity release company owns all or a part-share of your property.
- Should you wish to end the plan it may be difficult and you may incur penalties to do so.
- If you have care at home funded fully or partially by the local council, they may start charging you or ask you to pay more.
There are alternatives you might want to consider, such as:
- Downsizing to release equity
- Selling your property and renting
- Letting part of your property to provide an income
- Amending your lifestyle and finances
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Martin Lewis on Equity Release
Next Steps
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More information
The Astute Guide To Equity Release
Equity Release, sometimes known as Lifetime Mortgages have been a growth industry for many years allowing retired individuals and couples to raise money on their homes and property to help supplement retirement income and cash needs. This book provides an unbiased summary of the Equity Release market, so that anyone considering this area is well informed prior to making a decision.
Too Good To Be Free
How A Reverse Mortgage Can Improve Your Life, Your Cash Flow and Pay You Too
This reference guide was put together to provide the truth in a simply-stated fashion.What if there was a mortgage out there that was specifically for people who are 62 and older, and who are either retired or about to be.
MoneyHelper have information on Equity Release
The Equity Release Council is a trade body which represents the sector and promotes standards for its members
AgeUK have a section on equity release
If you’re over 55 you can get a quote from Retirement Solutions
