If you own your home, you may be considering equity release as a way to release money from its value. However, equity release is a big decision so you should consider it very carefully and get specialist advice before making any decisions.
What is equity release?
Equity release is a way of releasing cash from your home without having to move, either by taking out a type of loan secured against your home or by selling all or part of your home to a home reversion company.
What types of equity release plans are there?
There are two main types of equity release:
- Lifetime mortgage. This is the most common type of equity release. You borrow money secured against your home. The mortgage is usually repaid from the sale of your home when you die or move permanently into residential care.
- Home reversion plan. You raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.
Who can get equity release?
There are certain conditions you must meet before being able to take out equity release.
- For a lifetime mortgage you (or both of you, if you’re borrowing jointly) need to be at least 55 years old.
- For a home reversion plan you (or both of you, if you’re taking out a plan jointly) need to be at least 65 years old.
- You must own property in the UK, which must be your main residence.
- Your property must be in reasonable condition and over a certain value, and there may also be restrictions on the type of property accepted.
- If you have a mortgage or secured loan on your property you may still qualify for equity release, but it will depend on the value of your home and the amount outstanding on the existing mortgage or loan. You'll have to pay off any outstanding mortgages or loans secured against your home at the same time as taking equity release.
- Equity release may not be suitable if you have dependants living with you. Any dependants should take separate legal advice. If they wish to remain living with you in the property, they may need to sign a waiver confirming that they understand they don’t have the right to reside there if you die or move into permanent residential care.
How does equity release affect benefits?
Equity release can affect any benefits you receive, and may have an impact on any benefits that you may become entitled to in the future.
If you receive any means-tested benefits, they may be reduced or lost entirely. Means-tested benefits include:
- Pension Credit
- Jobseeker’s Allowance
- Income Support
- income-related Employment and Support Allowance
- Universal Credit
A specialist equity release adviser will be able to advise what will happen to your benefits if you take out a plan.
What are the advantages and disadvantages of equity release?
Understanding the features and risks of equity release is complicated. We've outlined some of the advantages and disadvantages below of both types of equity release, but you should seek further advice.
Get advice from a fully qualified and experienced equity release adviser. They will review your personal circumstances and see if there are any possible alternatives. If equity release is the right option, they’ll provide a recommendation of the type that best suits your requirements.
- You can get a tax-free lump sum and/or smaller, regular payments to supplement your income, and can continue to live in your home until you die or move into permanent residential care.
- You may continue to benefit from any rise in the value of your property.
- You can still move to a suitable alternative property in the future, as equity release is transferable. 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.
- Equity release reduces the value of your estate and the amount that will go to the people named as beneficiaries in your will. Your estate is everything you own, including money, property, possessions and investments.
- With a home reversion plan, the reversion company owns all or a part-share of your home.
- Getting a lump sum or taking extra cash to supplement your income may reduce your entitlement to means-tested benefits, now or in the future.
- If you get care at home funded fully or partially by the local council, they may start charging you or ask you to pay more.
How can I avoid risk if I'm taking out equity release?
All firms advising on or selling equity release have to be regulated by the Financial Conduct Authority (FCA). This provides protection, security and access to the Financial Services Compensation Scheme if you ever need it.
You should choose a product from a company that is a member of the Equity Release Council. This is an industry body and its members agree to abide by a voluntary code of conduct. This includes certain product standards. When these standards are met it means you:
- can live in your property for life, or until you move into permanent residential care
- can move your plan to an alternative property (providing it is acceptable to the equity release product provider)
- will never owe more than the value of your home when it is sold after you die or move into permanent residential care.
Always make sure you speak to a specialist equity release adviser, and that both the adviser and the equity release provider are authorised by the FCA. If something goes wrong with your plan, contact your provider first. They will have a complaints procedure to follow. If you’re not satisfied with the response, you can contact the Financial Ombudsman Service to see if they can help.
Every year our Advice Service deals with thousands of calls from older people in need. Call us today to make sure that you are receiving all the help and support available to you.