What does ‘equity’ mean?
It’s the value of the assets you own (in this case, your property) minus any debt such as a mortgage.
For example, if your home is worth £200,000 and you have a mortgage of £80,000, then you have £120,000 equity.
What is Equity Release?
Equity release is where you can release money from your property without having to move or sell your house. You can access the fund as a lump sum or set up an equity release drawdown facility depending on what type of plan you choose. There are no monthly repayments, the interest rolls up and is only payable when the property is sold.
With all Equity Release Council approved plans there is a ‘no negative equity guarantee’ which means you and your family will never owe more than the value of your home.
Home equity release can be an ideal way of supporting yourself in later life or simply used to give your bank balance an extra cash boost!
Types of Equity Release Schemes
Lifetime mortgages and home reversion plans are the two main types of equity release plans. We can advise you on both equity release products, making sure you are aware of the advantages and disadvantages of both.
With a lifetime mortgage, you can release tax-free cash from your property while continuing to own and live in your home. The loan is then repayable only when you pass away or go into full-time care. This allows you to have the lifestyle you want with no commitment to monthly repayments. You will be protected by the “no-negative equity guarantee”, meaning you will never owe more than the value of your home.
But it’s good to bear in mind that the value of your estate will decrease. This could result in reduced inheritance, although you may have the option to protect an element of any remaining equity for your loved ones.
Home Reversion Plan
A home reversion plan is when you sell your home, or a percentage of it, to a provider in exchange for a discounted lump sum. Therefore, unlike a lifetime mortgage, there is no interest, and you can benefit from increased house price on the percentage of the property you own. However, a home reversion plan is less flexible than a lifetime mortgage as it can be difficult to end the plan and buy back the percentage you sold.
How Does Equity Release Work?
Equity release works by enabling you to access funds from the equity you hold in your property. There are many factors which will influence the amount you can release but we have created a simple diagram below to show you some examples.
With no mortgage or debt your equity will be greater. However, there are many factors which will influence the amount you can raise such as age, health and lifestyle.
If you have an outstanding amount on your mortgage this will need to be cleared either by existing funds or through releasing equity. You can then spend the remaining equity in any way you choose.
Are you eligible for Equity Release?
Equity release isn’t suitable for everyone. To be eligible you must:
Be aged 55 or over (youngest applicant if a couple)
Own your own home worth over £70,000
Live in the UK and the property must be your main residence
Be able to pay off any remaining mortgage or secured loan with the amount of equity you release
What can I spend my money on?
You can choose to spend the money you unlock from your home in any way you want to. What a thought! Here’s what some of our customers choose to spend their equity release on: Making home and garden improvements.
Clearing an outstanding mortgage or any other debts
Topping up your income to help with day-to-day living costs
Helping loved ones with financial support
Buying a new car, boat or holiday home
Enjoying dream holidays
Common concerns and more information on Equity Release
Whenever we want to know anything we usually go online and search for it. However, sometimes you can find just as much information that doesn’t help as information that does!
Here at Montgomery Paul we know there’s been lots of incorrect, negative press around equity release and inaccurate information posted, so we want to set the record straight for you right here.
The first thing to remember is that equity release is a regulated financial product, with several guarantees in place to protect you and your estate.
Add to that our own high standards, expertise and our bespoke equity release service and you really are in safe hands.
Our advisers are always happy to explain how equity release lifetime mortgages work and answer any questions. To help put your mind at ease now, here are the most common equity release worries we’ve heard– and why you don’t need to worry!
Will I lose my home?
You won’t lose your home when you choose equity release. All our equity release plans guarantee you the right to remain in your home for life, as long as it remains your main residence.
What about any inheritance?
When you pass away or move into long-term care, your home is sold and the money is used to pay off the outstanding balance of the loan.
Any equity taken out of your home will reduce the amount of inheritance you can leave your beneficiaries. If the equity release interest is not paid each month and you elect to roll this up, then this will also further reduce your estate.
It’s important to understand what all your options are and to perhaps discuss if your family can help financially. If this is not possible, then maybe paying the interest per month is an option for you (assuming it’s affordable for you to do this).
If either of these options are not feasible and you need to access the equity in your home, then it is still possible to protect any element of equity that is bequeath to your beneficiaries with an Inheritance Protection Guarantee. This is one of the areas that needs a lot of discussion and one of our specialist equity release advisers can help you understand the impact of this option.
You will never owe more than the value of your home, and any money left over is returned to your estate. As mentioned, you can also choose a Protected Equity Guarantee, which allows you to leave a fixed percentage of your home’s value to your beneficiaries.
Is equity release an unregulated industry?
The equity release industry is fully regulated by the Financial Conduct Authority, and Montgomery Paul Limited is authorised and regulated by the Financial Conduct Authority
Whoever you decide to talk to regarding your retirement lending, do make sure they are Equity Release Council Regulated
Can I release equity to buy another property?
You can still move to a new house on an equity release plan. You simply move your plan to another suitable property without any financial penalty. Please note that although there is no penalty if you downsize, there may be a penalty on all or some of the proportion of the equity release loan that needs to be repaid.
Am I allowed to repay the loan?
If you want to repay the loan or pay off interest on a lifetime mortgage, you can. Some plans allow you to repay the loan early and choose fixed early redemption penalties over a certain time frame.
Interest payment plans enable you to make monthly repayments on the loan, or you have the option on some plans to make voluntary partial repayments – usually up to 10% of the capital.
If you’d like to find out more about the safeguards surrounding equity release, we recommend you read our section on The Equity Release Council.