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Here at Brethertons we have had lots of enquiries from customers, exploring whether equity release is an avenue they should pursue as part of their retirement strategy.
The equity release market certainly appears to be holding steady during the first quarter of this financial year. Statistics released by the Equity Release Council show that the first three months of 2021 saw £1.14bn released.
This article aims to explain a little about equity release and how it operates.
What is Equity Release?
Equity Release is a way of unlocking some of the equity in your property whilst you still reside there provided you are over the age of 55.
What types of Equity Release schemes are there?
There are two main types of Equity Release scheme; the Life Time Mortgage and the Home Reversion Plan.
Life Time Mortgage
The first type of Equity Release is known as a Life Time Mortgage. This is the most popular Equity Release Scheme and the Scheme which we deal with for the vast majority of customers looking to release equity from their homes.
Essentially what happens is you borrow against the value of your home, releasing a loan which can be used to provide an income, a lump sum or both. The interest calculated will vary depending on the option you take. The loan does not have to be repaid until you pass away or move into alternative accommodation. Interest is usually at a fixed rate, compounded monthly, rolled up and added to the outstanding loan so that the debt increases as time goes by.
Some Equity Release Schemes are portable, meaning if you want to sell your property and move to another it may be possible for you to transfer the loan the other property. It is important to note that the equity release lender will need to agree to the loan being transferred to a new property. This will be subject to their lending conditions at that time and whether the property you wish to purchase is suitable to secure their monies loaned to you. You should also note that if you are considering downsizing at that time you may be asked to repay part of the loan you have borrowed.
The Equity Release Council builds protections into every approved provider’s plans. For example, they include a no negative equity guarantee, meaning that you will never owe more than the value of your home. You may also be able to protect a percentage of the equity in your property so that you are still able to leave a lump sum to your beneficiaries. A Financial Advisor can advise you on this in more detail.
Home Reversion Plan
The second type of Equity Release scheme is known as the Home Reversion Plan. This involves all or part of your home being sold to a private company known as a Reversion Company; in return for which you receive a cash lump sum, an income or both. You can remain in your house, rent free or for a nominal rent, for the rest of their life. When the property is sold, usually after you have passed away or if you need to move into alternative accommodation, the Reversion Company receives the proceeds of the sale, depending on what share of the property has been sold to them. With a Home Reversion Plan you can protect a share of the property to leave to any beneficiaries in a Will.
If you are thinking about an Equity Release plan it is important to contact an Independent Financial Advisor and talk to them in more detail about this. All Advisors dealing with Equity Release Schemes must have a specialist qualification. Earlier this year the Equity Release Council issued a new competency framework to support financial advisors in their professional development within the Equity Release market.
Should you so wish we can introduce you to an appropriately qualified IFA.
Once you have decided to proceed with your Equity Release scheme , you will then need to instruct a Solicitor. The Solicitor will need to meet with you face to face during the transaction and will need to advise you on all of the documentation which you are entering into, obtaining your signature to the Mortgage Deed and provide a Solicitors Certificate to the Equity Release provider.
Brethertons are also members of the Equity Release Council which means that we have the specialist knowledge required to process these transactions and adhere to the competency framework issued by the Equity Release Council when advising you on your Equity Release Scheme.
Emma is a Senior Associate Solicitor at Brethertons. She specialises in Equity Release schemes and has represented many customers in these transactions
Emma can be contacted on 01788 557563 or e mail at firstname.lastname@example.org