Equity Release

Equity release refers to a range of products letting you access the equity (cash) tied up in your home if you are over the age of 55.

Equity release is a way of supplementing your income by releasing tax-free cash from the value of your home, without having to move out. You can take the money you release as a lump sum or, in several smaller amounts or as a combination of both.

Making the decision to release equity from your home is a big one, so it’s important that you understand all of the facts before taking any action. Read on to learn more about how equity release works, what the pros and cons are, and whether it’s the right solution for you.

What is equity release?

Equity release is a way of accessing the equity (cash) tied up in your home if you are over the age of 55. Many people choose equity release as an alternative to downsizing or taking out a conventional mortgage, as it allows you to stay in your home for as long as you like.

People release equity from their homes for all sorts of reasons, including:

- To supplement their income in retirement

- To make home improvements

- To pay off an existing mortgage or other debts

- To help family members buy a property

Is equity release safe?

Yes, equity release products are safe as they're regulated by the Financial Conduct Authority (FCA) and governed by the Equity Release Council (ERC). If you decide to progress with releasing equity from your home, always make sure that the equity release provider and specialist equity release adviser is authorised by the FCA.

The Equity Release Council is an industry body that works to protect the rights of consumers considering equity release. All members of the Equity Release Council have to adhere to a strict code of conduct, which includes providing clear information, advice and support throughout the process.

There are several protections in place for equity release customers, including a no-negative equity guarantee, which means you will never owe more than the value of your property.

Equity release options

There are two main types of equity release; Lifetime Mortgages and Home Reversion Plans.

Lifetime mortgage

With a Lifetime Mortgage, you take out a mortgage secured on your property provided it is your main residence while retaining ownership. Lifetime Mortgages typically have higher interest rates than conventional mortgages.

Lifetime Mortgages mean:

• You can choose to ring-fence some of the value of your property as an inheritance for your family.
• You can choose to make repayments or let the interest roll up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
• There are no monthly repayments to make, as the loan and any accrued interest are repaid when the property is sold after your death or moving into long-term care.

Home Reversion

With a Home Reversion plan, you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments.

Home Reversion plans mean:

• You have the right to continue living in the property until you die, rent-free, but you have to agree to maintain and insure it.
• You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values unless you decide to take further cash releases.
• At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.

What are the advantages of equity release?

As with any financial decision, there are advantages and disadvantages to releasing equity from your home. These should be carefully considered before taking any action.

Advantages of equity release:

• You can stay in your home without having to downsize
• You may be able to release tax-free cash to supplement your income.
• The money you release is typically only repayable on death or moving into long-term care.
• You may be able to choose how and when you take the money, and in some cases, you can make partial repayments.

What are the disadvantages of equity release?

Releasing equity from your home also has some disadvantages you should be aware of:

• Equity release schemes typically have higher interest rates than conventional mortgages, so the amount you owe could quickly increase.
• Your family may inherit less when you die.
• Taking out an equity release plan could affect your entitlement to means-tested benefits.
• You may have to pay fees for taking out the plan, and there could be other costs such as valuation

You should always seek independent financial advice before taking out an equity release plan to make sure that it is the right decision for your individual circumstances.

Does equity release affect benefits?

Releasing equity from your home could affect your entitlement to means-tested benefits, such as housing benefits and council tax reductions. If you are thinking about taking out an equity release plan it is important to seek independent financial advice first, to make sure that it is the right decision for your individual circumstances.

What are the alternatives to equity release?

If you are thinking about releasing equity from your home, it is important to consider all of your options and seek independent financial advice before taking any action. Some alternative options to releasing equity from your home include:

• Downsizing to a smaller property
• Selling your property and renting
• Taking out a conventional mortgage
• Making use of your savings and investments
• Using your pension income

Equity release may not be the right choice for everyone, and there are a range of other options that can be considered depending on your individual circumstances. You should always seek independent financial advice before making any decisions about your finances.

Get expert advice

If you’re thinking of taking out an equity release product, you should take financial advice from an independent financial adviser.

An adviser can help you understand:

• How equity release works
• The different types of equity release products available
• Whether equity release is suitable for your individual circumstances
• The implications of taking out an equity release product, including any effect on your entitlement to means-tested benefits

All advisers recommending equity release schemes must have a specialist qualification.

So if equity release is the right choice for you, fill in our callback form or give us a call.

FULL DISCLOSURE - Echo Finance does not arrange or advise on equity release. We refer clients interested in equity release to carefully selected FCA-regulated equity release advisors.