Equity release is getting very popular in the UK as more and more people over the age of 55 who are home owners are looking to access some of the financial wealth and benefits locked up in their homes. Due to price rises in property the amount of equity in your home could be significant, and provide an option for releasing a capital sum.
This is a very popular form of equity release. It’s a long-term loan which is secured on your property. The amount you can borrow depends on the value of your property and your age. Unlike a regular mortgage, you don’t have to make any repayments before the end of the loan term. Each year there is interest added to the loan which rolls up on an ongoing basis. The loan and the interest are repaid in full, usually from the sale of your home, when you die or have to go into long-term care. A lifetime mortgage will typically reduce the amount of any future potential inheritance your estate will be liable for, and it can also effect the welfare benefits you receive, or will receive in future.
There is a variation to the above, whereby you can make regular monthly or ad hoc repayments of the loan should your situation change.
Home Reversion Plans
This is a form of equity release that lets you use some of money that is tied up in your property, where by you sell part or all of your home for either a tax-free lump sum, or a regular income, or both. You then effectively live in the property as a part owner/tenant, but without paying rent.
The amount paid will typically be between 20% and 60% of the market value of your property, and will depend on various factors including your age and your state of health.
How do you qualify?
To qualify you must live in the UK (including Northern Ireland), be aged between 55 and 95, and own a property worth at least £70,000. The property must be either freehold or leasehold, with a minimum lease period of 75 years remaining. The property must be of standard construction and in good condition. You must also be able to release enough equity from your property to enable you to pay off in full pay any outstanding mortgage or secured loan.
To protect consumers the Financial Conduct Authority (FCA) also regulates home reversion plans.