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This simple, impartial guide contains everything you need to know about Equity Release (the process of releasing capital from your home to provide you with extra cash).
Over the following pages, we’ll talk you through it all – from the different types of Equity Release available, through to the alternative financial options – and we’ll help you make an informed decision about whether Equity Release is right for you.
Take your time, have a browse through the guide with your family or friends, and if you have any questions please don’t hesitate to contact us. No matter what your question Mortgage Advisor Glasgow will be happy to help you.
Our friendly team of Equity Release advisers is always on hand to offer free, no-obligation, impartial advice.
Call us on 0141 2801992 or use the call me back button and one of our Equity Release Advisers will call you back.
Please read on and we will explain what Equity Release is in plain English.
What is Equity Release?
If you’re a home owner aged over 55*, Equity Release could help you to free – or ‘release’ – equity from your home, so that you’ve got extra cash to spend on the things you want or need.
‘Equity’ simply refers to the difference between what your property is worth and any outstanding loans, such as a mortgage loan secured on the property.
Let’s look at an example of how Equity Release works.
For example: If your house is worth £150,000. You have retired and paid off all your debts, including the mortgage. Your “equity” is £150,000.
Or you bought your house for £100,000 with the help of a mortgage of £80,000. The value of the house is now £200,000 and the outstanding mortgage is £10,000. Your “equity” in this example would be is £190,000. Using an Equity Release Mortgage will let you access the Equity in your Home.
It’s entirely up to you what you spend your equity on and how you receive it. We’ll discuss these options in more detail later in the guide.
Why Should I Consider Equity Release?
More people than ever are now considering Equity Release because of factors including: cut-backs in state pensions,
inadequate private and company pensions, longer life expectancy and improved Equity Release regulations.
For many people though, they just want to improve their quality of life. The most popular reasons for taking out Equity Release plans in recent years include:
Home improvements (new conservatories, central heating, double glazing, repairs, garden improvements)
Clear debts (credit cards, loans, mortgages, reduce outgoings)
Holidays, cruises and short breaks New cars, caravans, holiday homes
Family treats (grand children’s school fees, gifts) Improve retirement or enable early retirement
Private medical care or mobility items (scooters, stair lifts)
Visit family or friends overseas
Help children onto the property ladder or to reduce their mortgage
Reduce liability to inheritance tax
Am I Eligible for Equity Release?
Each type of Equity Release plan has different eligibility criteria, so you must always check the details with the provider or ask your Equity Release Adviser.
There are however, some general rules: • The youngest applicant must be over the age of 55.
- Your property must have a minimum value of £70,000 (some
providers may require a higher minimum)
- Your property must be in England, Scotland, Wales or Northern
Ireland (excluding the Channel Islands and Isle of Man)
- If your property is ex-local authority, you must, in most cases, be
outside the discount period
- You must be able to raise enough money to repay any existing
mortgage or secured loans.
Some types of homes are not suitable security for Equity Release( at time of writing this guide) plans, including mobile homes, park homes, houseboats, and properties with agricultural or forestry ties. Also, it is more difficult to arrange Equity Release plans on properties with commercial or business use, or properties over or adjacent to commercial properties.
Is Equity Release the Right Choice for Me?
Equity Release isn’t the right choice for everybody and that’s why we’ve created this guide; so, you can read all the information and make an informed decision.
Take your time, discuss the options with your friends and family and, before you decide anything, make sure that: You understand how it works and you understand the risks involved, not just the benefits. You have considered all the alternatives.
You have spoken to an authorised and specialist Equity Release Adviser who will make sure if Equity Release is the best option for you.
Why It is Important to Seek Specialist Equity Release Advice.
It’s always important to seek professional advice when making important financial decisions – and Equity Release is no exception.
Before taking any action, Age Concern advises: “If you are considering taking out any form of Equity Release product, Age Concern strongly recommends independent legal and financial advice (Age Concern is unable to give financial or legal advice).”
Consumer group, Which? echoes this advice and reiterates the importance of seeking specialist advice. It’s important that you do this, as there is such a wide range of providers and plans available that, without professional guidance, you could miss out on thousands of extra pounds by choosing the wrong one. Also, at a time in your life when you may be financially vulnerable, you need to be confident that your home and the Equity Release plan are both secure.
There are other important factors to consider too, for example the financial welfare of your family or entitlements to state benefits, so we’ll address this in more detail later in the guide.
Why Should I Use Mortgage Advisor Glasgow when seeking Equity Release Advice?
We’re one of Scotland’s most experienced Equity Release specialists. Our advisers have helped retired home owners raise extra monthly income and cash lump sums of thousands of pounds.
Our Advisers offer a Free initial no obligation consultation. Our friendly professional advisers are at hand to help you assess whether Equity Release is the right option for you.
If you decide it is, you can then trust them to find the Equity Release plan that’s best for you. We charge a fee only on
completion of the plan. Our typical fee is 1% of the loan amount( minimum fee of £795 applies, subject to change) which is deducted from your Equity Release lump sum.
Independent, unbiased financial advice. Your adviser will source on Equity Release products from a panel of providers that are representative of the whole market.
Guarantees and safeguards.
Our advisers only recommend Equity Release Council products or those with similar safeguards. This ensures that you (and anyone else named in the agreement) will have legally guaranteed occupancy of your home for the rest of your life.
Exclusive deals with extra benefits that are not available anywhere else.
Specially trained Equity Release advisers, will always be there to help and advise you from start to finish.
What Types of Equity Release Plans are Available?
There are two main types of Equity Release plans:
Lifetime Mortgage Plans and Home Reversion Plans.
You’ll find a range of competing lenders providing these plans, each of which will vary in terms of what it can offer you. To help determine the best option for you, you should always seek professional advice from an independent Equity Release Adviser.
Let’s Look at Lifetime Mortgage Plans First.
The most popular type of Equity Release plan is the Lifetime Mortgage Plan. There are three main versions of the Lifetime Mortgage Plan, each of which is designed to do a different job.
They are:
Roll-up: cash lump sum.
Roll up: draw down.
Interest only.
What all Lifetime Mortgage Plans have in common, is that you will retain ownership of your home and borrow a percentage of the property value. To understand the features and risks, please ask one of our advisers for a personalised illustration.
Roll-up: cash lump sum. Under this version of the Lifetime Mortgage Plan, you borrow a percentage of the property value, but you don’t have to make any monthly mortgage repayments of the loan or interest. Each year (or month) interest is added to the loan.
When must it be repaid? There is no set repayment date. The loan becomes repayable on the sale of the property when the last applicant dies or moves into long-term care. The loan can be repaid earlier, but it may then be subject to an additional early repayment charge.
How much can I borrow?
The minimum loan is generally £10,000. You must usually be at least 55, but because the outstanding loan increases with interest each year (and quite quickly in later years), younger applicants may only borrow a small percentage of the property value. However, if your property increases in value, you may be able to top up your loan later (subject to additional charges).
The general rule of thumb is the older you are, the more Equity you can release.
Lifetime Mortgage Plans What are the safeguards?
As a safeguard, our advisers will ensure that the plan it recommends includes a no negative equity clause. This means that if you keep the property in good repair and comply with the terms of the agreement, neither you nor your estate will ever be required to repay more than the property’s value.
How should I choose an interest rate?
You should make sure that the interest on the loan is fixed for life or if the rate is variable that it is capped (it can only rise to a certain level). When comparing interest rates, you should always check if the interest is compounded monthly or annually. Interest compounded monthly will increase your total loan more quickly than the same interest rate compounded annually.
If the property value remains more than the outstanding loan plus interest, the excess is payable to you or your estate when the loan and interest are repaid to the plan provider. You may be able to ‘protect’ a proportion of the property value. In this way, you use only a proportion of the property value as security. The amount you can borrow is then reduced as is the no-negative equity safeguard.
However, there is a greater chance of there being an excess available to you or your estate on repayment of the mortgage loan.
Let’s look at another example of Equity Release using the roll up interest method of a Lifetime Mortgage.
Cash Lump Sum Lifetime Mortgage Plan Margaret is 65 and has a house worth £200,000 with no outstanding mortgage. She takes out a cash lump sum lifetime mortgage of £50,000 with an interest rate of 6.35%. The overall cost for comparison is 6.4% APR. The interest rate is fixed for life and is added annually. Margaret dies 15 years later, by which time the total loan is £125,902. That’s the original loan of £50,000 plus the accumulated interest. If her house increased in value by 1% each year, it would now be worth £232,194. So, when the house is sold and the loan repaid
Margaret’s estate will receive £106,292. Please note that this is only an example and the value of your house could go down or not increase at the same rate. Our experts always ensure that there is a no-negative equity provision.
Let’s look at an example of a Roll-Up Draw down Lifetime Mortgage.
How does it work? Instead of your having to take a single cash lump sum initially and then having to make additional applications for further advances, a draw down plan allows you to receive a series of smaller cash lump sums. With a draw down plan, the lender agrees the maximum amount you can borrow.
You can take a smaller initial cash lump sum and then have a cash facility to withdraw amounts when you need them up to a pre-agreed limit.
Why should I draw down?
The amounts drawn down are secured on your home and with interest are repayable from your estate.
Interest is only charged on the money you have drawn down. This means that as the loan is smaller in the earlier years, the total interest added to the loan is less than if you took the full amount initially. It doesn’t make sense to withdraw all the money immediately and have interest charged on it if you don’t need it all the time.
Here is an example of a Draw down Lifetime Mortgage Plan.
Mary is 65 and has a house worth £200,000 with no mortgage. She takes out a draw down lifetime mortgage with an initial lump sum of £20,000 and a cash facility of £20,000 available for up to 10 years.
The interest rate is 6.35% and the overall cost is 6.6% APR. The interest rate is fixed for life and added annually. Five years later,
Susan needs an additional £10,000 which she draws down. Susan dies 10 years later. By this time, the total amount borrowed is £30,000. The total loan plus interest that must be repaid is £68,868.
If Susan had taken the full £30,000 ‘up front’, the total loan plus interest would have been £75,541. Please note that this is only an example and the value of your house could go down or not increase at the same rate. Our experts always ensure that there is a non negative equity provision.
Interest-only Lifetime Mortgage
A Home Reversion Plan and Roll-up Lifetime Mortgage Plan do not require you to make any monthly payments. If you have an Interest only Lifetime Mortgage, you pay interest monthly. Unlike a conventional mortgage, the amount you can borrow depends on your age, your property’s value and what you can afford.
Do I qualify for an Interest-only Lifetime Mortgage?
This type of plan is only suitable if you have a regular source of income such as a salary or pension. This plan is not currently available in Northern Ireland( at time of writing)
What are the interest payment terms?
The interest rate (and therefore, the monthly payments) is fixed at outset. Payments
are made monthly. This means that the amount of the loan does not increase, unlike a Home Reversion Plan or Roll-up Lifetime
Mortgage Plan. There is no fixed term unlike a conventional mortgage and the loan is repaid on the sale of the property. This might be due to the death or long-term care requirements of the last applicant. What are the consequences of missing an interest payment? It will depend on the plan, but typically, if three payments
are missed, the plan will be converted to a Roll-up Lifetime mortgage. This would mean that interest would be charged at a different rate which might be higher than the original fixed rate.
Let’s now look at Enhanced Lifetime Mortgage Plan.
An increasingly popular form of a lifetime mortgage plan, an enhanced plan simply enables you to release extra funds based on your lifestyle and health conditions.
How is this plan different?
Enhanced plans are available as either roll-up cash lump sum lifetime mortgages or roll-up draw down lifetime mortgages. The only difference is that the lender is happy to offer more cash or a larger draw down facility based on your answers to some health and lifestyle questions. In most circumstances, you will not need to undergo a medical and the usual safeguards and guarantees are in place.
Will I qualify for an enhanced lifetime mortgage plan?
It is estimated that up to 60% of all customers might qualify for an enhanced plan. It’s not just serious illnesses and conditions that are accepted, you could qualify for the enhancement simply if you smoke or if you are overweight. Common conditions such as asthma, high blood pressure and angina are also accepted. ERIC recommends that if you are on any kind of medication it is worth speaking to our expert Advisers on 0141 2801992 to see if we can secure you additional funds.
See below for some examples of enhanced Equity Release examples
Mike’s Enhanced Roll-Up Lifetime Mortgage Plan:
Mike is 65 and lives in a £200,000 property. He smokes around 20 cigarettes a day. He could take a lump sum of £66,000 on his property and pay off his outstanding mortgage which freed up his pension for everyday living expenses. If Max had taken a non enhanced lifetime mortgage the maximum available would have been £58,000.
Kyle’s Enhanced Roll-Up Lifetime Mortgage Plan: Kyle retired early at 60 after a stroke and other health problems. To make ends meet until he could claim his pension he released £84,700 from his £200,000 home. This enabled him to get the care he needed in his own home. If Kevin had taken a non-enhanced plan he would have only be able to draw upon £49,000
Home Reversion Plans
The other main type of Equity Release plan is the Home Reversion Plan.
Home Reversion Plans allow you to sell all or part of your property now, for a tax-free cash lump sum. However, a legal agreement guarantees that you continue to live in the home rent-free (or for a nominal rent such as £12 a year) until you wish to move or until you die. To understand the features and risks, please ask one of our advisers for a personalised illustration.
What are the main benefits of Home Reversion Plans?
Home Reversion Plans have several benefits. The main ones are: You raise the highest lump sum compared with other Equity Release plans the lump sum is tax-free You can spend the money as you wish No monthly payments (except perhaps a nominal rent)
You can retain part of the property to give to your beneficiaries on your death You still have the privacy of your own home These plans are regulated by the Financial Conduct Authority.
Home Reversion Plans, can I just sell part of my property?
You can sell just part of your property to the plan provider if you so wish. If the property is subsequently sold, the
proceeds will be payable to you and the plan provider in proportion to the share of the property you sold when you took out the plan.
You won’t raise as much money as if you sold the property with vacant possession because you are being guaranteed rent-free occupation for the rest of your life. Vacant possession simply means that neither you nor anyone else will be living in the property when it is sold.
Home Reversion Plan, what age do we have to be to qualify?
To qualify for a home reversion plan you will generally have to be at least 65 (or the youngest joint applicant at least 65). The amount of cash you’ll receive will vary with age and whether you’re male or female. You can expect to raise from 35% to 65% of the property’s vacant possession value.
Here are two examples of Home Reversion Plans
Rob’s Home Reversion Plan Rob is aged 72 and owns a property valued at £200,000. He needs to raise the maximum amount of money available. The most he could raise on a lifetime mortgage is £74,000 which is insufficient for his needs. A full reversion from one plan provider would raise him £90,813.
May’s Home Reversion Plan May is aged 70 and owns a property valued at £200,000. She needs to raise the maximum amount of money available. The most she could raise on a lifetime mortgage is £70,000 which is insufficient for her needs. A full reversion with one plan provider would raise her £75,164.
What are the disadvantages of Home Reversion Plans?
If you sell all your equity, neither you nor your estate will benefit from any increase in the property’s value. You’ll sell your property to the plan provider for less than the amount you’d receive if you were to move out and sell it unoccupied. This means that the amount you can leave to your beneficiaries will be reduced. You may lose entitlement to some means-tested state benefits (but not the state pension) The younger you are, the lower the amount you’ll receive
On completion of the plan you’ll have to repay any outstanding mortgage or loan secured on the property (although this can be done from the Equity Release). As you’ve sold your property, you cannot buy it back or leave it to your family. You will not be able to use the property as security for any future borrowing. If you were to die or must move from your property shortly after taking out a home reversion plan, there will be a disproportionately high loss to your estate.
Home Reversion Plans are not as popular as Lifetime Equity Release Mortgages.
Simply put, many people quite rightly do not like the idea of giving up ownership of their home. Therefore, it is vital that you take expert advice from a qualified and independent Equity Release adviser, before making any decision. If retaining ownership of your home is a must for you, then Home Reversion is not for you.
We have looked at the two types of Equity Release, Lifetime Equity Release and Home Reversion. However, a good Equity release adviser will also look at all the other options open to you, before advising whether Equity Release is the right option for you.
Equity Release isn’t right for everybody. That’s why it’s so important to get the right advice before you proceed. If you decide to call us advisers, you’ll get a face to face appointment in your home or at our office. A comprehensive and confidential review of your financial circumstances, needs and objectives and a recommendation. This may (or may not) be that you take out an Equity Release plan.
Our adviser will also recommend which type of plan would be most appropriate for you and help you choose a provider: they are acting on your behalf and in your interests.
The advice may be that you should consider raising money in other ways. This may include: Mortgaging your home by way of a conventional mortgage, drawing on money in a savings account or en-cashing an investment. Selling your home and moving to a smaller, less expensive property. Claiming state benefits such as the state pension credit or the attendance allowance. Help with home improvements may be available from your local authority orthe Home Improvement Trust.
Each of these options has advantages and disadvantages, what matters most is that you choose the solution that’s best suited to you and your individual circumstances. You should think very carefully about what you want to achieve – our advisers are specially trained to help you do this and will help you gather all the essential facts.
How Do I Make Sure I am Protected?
You should always make sure you are dealing with firms and providers, that are authorised and regulated by the The Financial Conduct Authority. There are further safeguards in place such as the Equity Release Council (Formally known as SHIP) approved lenders.
The Equity Release Councils(ERC) is a trade body that is dedicated to the protection of those you take out Equity Release plans and to the promotion of Equity Release.
At Mortgage Advisor Glasgow our advisers will only ever recommend lenders who are members of the Equity Release
Council.
Our Equity Release Advisers adhere to a strict code of practice to ensure you receive professional and impartial advice every time.
Code of Practice
Recommend plans from across the entire market, matching each client’s needs and circumstances to the most appropriate plan.
- Act in line with clients’ best interests always, advising against
Equity Release when it is felt that it is not the client’s best option.
- Provide a free initial consultation.
- Provide the client with clear information on the service that is being provided including any fees that may be charged and the time scales involved before they make any commitment.
- Ensure that all advisers are fully trained and qualified.
- Make an assessment and provide information on how a client’s entitlement to state benefits could be affected by Equity Release.
- Ensure that clients understand that the value of their estate and therefore, the amount left for their beneficiaries will be reduced by releasing equity from their property.
Solicitors.
If you apply for an Equity Release plan, you must have a solicitor to act on your behalf. The solicitor will not usually be allowed to give you financial advice, but will arrange for the legal requirements to be met and will advise you on the legal aspects of the plan.
You should try to appoint a solicitor who is experienced in
dealing with Equity Release plans.
Your solicitor should explain the effect the plan will have on the value of your estate and can also advise you on whether you should rewrite your will. It is entirely your choice which solicitor acts for you.
Solicitors with experience of Equity Release plans:
Usually charge lower fees
Generally, complete the plan more quickly
Are happy to sign a certificate certifying that you understand all the aspects of the plan (because they will provide a layman’s explanation)
What Else Should I Consider When Thinking About Equity Release?
This guide has covered many common questions about Equity Release.
There are just a few more things we would like to mention:
Always consider the impact that Equity Release might have on your entitlement to means-tested state benefits. Our advisers are trained to help you with this.
If you have close family, make sure you discuss the recommendations with them. Your decision may affect their
inheritance or indeed the support they give you now.
Make sure that you feel comfortable with the safeguards being offered with an Equity Release plan. We have described the safeguards that come with a recommendation in the previous section.
Never invest in any product you don’t understand.
And, don’t forget, always…seek independent advice from qualified Equity Release Advisers
Contact Us On 0141 2801992 if you need help or advice. Never be afraid to ask a question that will help you
understand how these plans work. There is no such thing as a stupid question when it comes to
organising your financial future.
Frequently Asked Questions,
What is Equity Release?
Equity release allows you to convert some of the equity in your property to a tax-free cash lump sum or a regular income without you’re having to sell up and move out and without the need to make any monthly payments.
Will I make monthly payments?
No, unless you choose an interest only lifetime mortgage.However there are now some lenders that will allow you to make voluntary payments. This can be useful if you want to minimise the roll up of interest on your Lifetime Mortgage.
Interest only lifetime mortgage plans may suit you if you have a regular source of income and can therefore afford to pay interest on a monthly basis. The benefit of this is that the amount of the loan does not increase. It may be possible to pay all the interest or a proportion dependent on what you can afford. To discuss interest repayment options give us a call on 0141 2801992
Can I use the money for anything I want?
Yes, if it’s legal! Most of our clients use the money to pay off outstanding debts and mortgages, make home improvements, buy holidays, cars, or help family, or simply to make life a bit more comfortable.
How much money can I raise?
This is dependent on your age, health and the value of your property and varies between different products. The minimum loan is generally £10,000 and you need to be able to raise enough to pay off any outstanding mortgage plus any other loans secured on the property. To find out how much you could raise please call us on 0141 2801992
Can I live in my home for the rest of my life?
Yes, you and anyone else named on the agreement have security for life.
How long does it take to get the money?
It can be as little as 3 or 4 weeks once we have received your application, but takes 6 to 8 weeks. If there are complications or if your solicitor is not familiar with Equity Release it may take longer.
We will keep you updated at every stage of the process.
What’s your best interest rate on a lifetime mortgage now?
Interest rates vary between the different plans and lenders. Like a conventional mortgage these changes frequently. Usually rates will be slightly higher than conventional mortgages but this is because they’re fixed for the life of the plan.The rates shown in the examples are actually higher that current( at time of writing) rates available.
Can I do Equity Release if I have a mortgage?
Yes. If we can raise enough money on the Equity Release plan to pay off the mortgage and any other loans secured on the property.
What fees are payable upfront?
Our advisers don’t charge any upfront fees and you are under no obligation to proceed at any stage of the process. If you do apply for a plan you will need to pay for the valuation on your property, usually between £200 and £300.
However many plans now include a free valuation, and often we can help you make the payment upfront or allow you to pay it in instalments. All other fees will be taken out of the amount released. Our adviser typically charges 1%(Min £895) of the amount of the loan on completion, which is deducted from the loan proceeds.
How much will it cost me to set up?
Set-up fees will vary depending on the chosen plan. There is normally an application fee, an advice fee, a valuation fee and the solicitor’s fees to consider. Most of this if not all will be subtracted the amount released so that there is very little you will have to pay upfront.
Some plans may offer special discounts, cash backs, free valuations or help with legal fees; your adviser will
explain the options available to you. Call our Advisers on 0141 280 1992 for more details..
Can I lose my house? Will it ever be repossessed?
No. Both Home Reversions and lifetime mortgages have safeguards.
If you take out a home reversion you have guaranteed lifetime occupancy under the lease agreement. Provided you comply with the terms of the agreement, you and anyone else named in the agreement has guaranteed occupancy for the full term of the lease.
If you have a lifetime mortgage and even if the total amount of the loan plus any interest exceeds the property’s value your house cannot be repossessed if you have maintained it and complied with the mortgage agreement.
Can I move?
You can move at any time with a lifetime mortgage. With some lenders you can transfer the loan to your new property or you can repay the loan from the sale proceeds. If it’s suitable security, you then start a new loan which is secured on your new property. However, you should bear in mind that these plans are intended to be long-term and if you move the loan may must be repaid with any early redemption charges and fees.
Each company has different conditions so you should check these before you go ahead with the plan.
If I die can my partner still live in the property?
Yes. Anyone named on the lease agreement or mortgage has the legal right to continue to live in the property until they voluntarily decide to leave it or until their death.
Hopefully this Equity Release Guide has given you good understanding of how Equity Release works. If you need help or advice on Equity Release or are considering Equity Release then get in touch with Mortgage Advisor Glasgow and we will be delighted to help you in any way we can.
Our Advisers cover the whole of Scotland, so give us a call now on 0141 2801992 and find out if Equity Release id right for you. If you would like a copy of this guide, please get in touch and we can email you copy.
To understand the features and risk, ask for a personalised
illustration.
Mortgage Advisor Glasgow is a trading style of Acla Financial
Services Ltd, which is authorised and regulated by The Financial
Conduct Authority. Registered address 121 Moffat Street, Glasgow
G5 0ND.
Equity release may involve a lifetime mortgage or a
home reversion plan. To understand the features and
risks, ask for a personalised illustration.
Equity release may not be right for everyone. It
may affect your entitlement to state benefits and
will reduce the value of your estate. Always ask a
retirement specialist to assess the potential effects.