With equity release, you borrow money and pay nothing back until your home is sold – either after your death or if you go into a care home. There are two main types of equity release plan available – Lifetime Mortgages and Home Reversion Plans. Both types of plans will allow you to remain in your home and release cash to use for whatever purpose you want, and both are currently regulated by the Financial Services Authority and subject to approval by the sector’s governing body – the Equity Release Council.
It is important to take independent legal and financial advice before choosing and signing up to a scheme, to make sure you consider all the possibilities and implications. Equity release is a big decision and might not be the best or only solution. Raising income or a lump sum from your home is only one of the options that may be available for older home owners. Consider all your options before you make a decision. You should start by thinking about other ways to raise money.
You may have other investments or assets that could boost your income or give you the lump sum you need – a financial adviser should be able to look at all your options. You may be entitled to state benefits such as Pension Credit, Income Support, Council Tax Benefit and Attendance Allowance. Consider moving to a less expensive, smaller property. If you are struggling to pay off debts, get advice on managing debt from your local Citizens Advice Bureau, local Age UK or National Debt line.
There are usually certain conditions that people taking out equity release schemes must meet. These differ between schemes but can include:
• A minimum age, usually 60, but more schemes are opening to people over 55
• A maximum amount you can borrow, for example 40% of the property value
• You must own your home and it must be of a certain value
• You must have little or no mortgage left to pay
• You have to borrow a minimum amount of money
• Some companies will only accept applications from people living in freehold houses, rather than leasehold flats
• Some companies will only accept applications from people whose properties have been built using materials like brick or concrete, not wood-build or prefabricated.
If you are thinking of taking out an equity release plan, you need to find out as much as you can about your options and weigh up the advantages and disadvantages fully before you decide if equity release is right for you. A fully qualified financial adviser should help you to understand the steps involved and talk you through your options, the effects this might have on state benefits and tax and your obligations. Each individual’s circumstances need to be assessed to ensure that any chosen equity release plan has no impact on an individual’s tax position or their state benefits.
Part of your choice will be over the type of equity release plan required. In the market there are a range of products to choose from, with new products being created regularly. If after advice, an appropriate equity release plan is what you choose, then you should be able to have:
• The flexibility to receive a tax-free cash lump sum
• The cash for whatever you wish
• Freedom from having to move home
• An option to guarantee an inheritance for your family
• The right to move to another suitable property without any financial penalty, with most plans.
