Releasing equity from your property.

I am often asked whether it is possible to borrow against the value of a main residence. A typical situation could be where pension income is not enough to provide the lifestyle required in retirement. The answer is yes, by using an equity release plan but….

Firstly, consider all the alternative alternatives because an Equity Release (ER) plan will not be arranged without charge.

You have the option to maintain interest payments if you wish, or interest charges can be rolled up in to the loan. However, remember that if interest is rolled up, the outstanding balance will increase over time – and that will reduce any planned legacies.

There are two types of ER arrangements, the most popular is often referred to as a Lifetime Mortgage because it allows the residents to remain in the property for their lifetime and that interest only is charged, this may be serviced or allowed to accumulate. The other type is often called a Home Reversion plan. This is where a lender agrees to lend a lump sum in exchange for a proportion of,or all the property. As an example, if the agreement is to take on 50% of the property value, when the arrangement comes to an end – the provider will be entitled to 50% of the property value at that time. This could be significantly more than the amount lent at inception. In this example, if the property value had increased, only 50% would benefit the owner.

There are some important guidelines to consider;

  • Firstly, discuss with family or someone you trust, if there is likely to be an impact on those that survive you – it is a good idea to ensure they understand what your objectives are and why. There may be lower cost alternatives such as loans, sale of other assets or downsizing.
  • Only deal with a fully qualified Independent Financial Adviser that has the appropriate qualifications. (CF6 is the qualification to provide Mortgage advice, and ER1 Is for advising specifically on Equity Release products)
  • Don’t rush any decisions, there may be other expenses to consider such as conveyancing as well as maintaining home insurance.

Remember that although a loan secured against a property has risks and costs, there is no guarantee that property prices will increase and that a lump sum benefit could reduce eligibility for some benefits. Setting up an ER plan might restrict future options in respect of moving home because not all properties are suitable and the remaining value (equity) might not be enough to purchase a desired property.90% of lifetime mortgage customers release equity within £10,000 – £100,000 or more. The amount released will depend on your age and value of your property.

You continue to own your house with a lifetime mortgage which is a debt secured against it. The value of equity released, plus accrued interest to be repaid upon death or moving into permanent long-term care.

All outstanding lending secured on your property must be repaid.

Issued by Wealthline Limited, which is authorised and regulated by the Financial Conduct Authority.

Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance.

The information contained in this editorial should not be construed as offering investment or tax advice.