Once homeowners near their retirement ages they often begin to wonder what the future may hold. We spoke with UK Property Finance experts in property from Bridging Loans, to Secured Loans to Equity Release.
Many realise that their assets are usually concentrated in their home and consider how they can recoup some of the money they have invested in their property over the years.
Downsizing to a smaller property is one solution but if the emotional attachment to your property is difficult to break then Equity Release could prove to be the answer.
But how does Equity Release work?
What is Equity Release?
Equity refers to the current market value of your property after you have deducted any outstanding debts such as a loan that you may have secured upon it.
As an example, if you used your home as security to borrow £10,000 to build an extension to your home and the value of the property is £300,000 but you still have an outstanding mortgage of £10,000 then your available equity would be £290,000.
Equity Release is simply another form of using your property to secure a loan but without monthly repayments. Another advantage is the money is tax-free.
The system provides homeowners with the opportunity to realise ambitions such as increasing the value of their homes, travelling or helping their children get onto the property ladder. You can simply enjoy your retirement without any financial hardships.
It’s easy to find an online Equity Release Calculator that requires very little information and can help to provide you with an estimate of how much money your home might release with an Equity Release scheme.
The benefits are not having to move house or take out loans with a repayment schedule.
How to get Started on Equity Release
An Equity Release scheme requires you to be at least fifty-five years of age, the property must be in the UK and be your principal residence.
Terms for eligibility usually require you to own the home outright but if you only have a small outstanding mortgage you can use the funds you raise to pay it off.
Once your contract has been completed the Equity Release works like a loan but without you having to make any repayments. There are no conditions on how you should spend the money you have released, you’re free to use it however you wish.
All re-payments are deferred until you finally leave your home either through entering residential care or your death. By then the loan you released will have accumulated interest which is recouped by the lender or Equity Release company from the proceeds once your property has been sold.
The Options for Equity Release
There are usually two types of Equity Release scheme.
A lifetime mortgage places an interest rate of around 5.14% on your loan although you are not liable for any re-payments. It is often the most popular scheme due to its flexibility and simplicity.
Home reversion requires you to sell part or all of your home in return for a cash sum which can be paid in its entirety or in regular payments. Your right to remain in your home is usually legally guaranteed through a tenancy agreement which is valid for your lifetime.
How long does an Equity Release Scheme take?
Although the timescale can differ between providers, the average length of time to process applications takes up to three months. As a legal transaction equity release needs to be considered in depth before taking any action.
You may want to consult your grown-up children as any scheme could probably affect what they believe their future inheritances to be. As with any legal procedure, there are costs and fees involved which can vary considerably between providers. Costs can include consultation and contract fees in addition to having to pay for your property to be valued. The lender will usually insist that you have adequate insurance for the structure of the property.
Many Equity Release providers will always have advisers who will talk over the benefits and pitfalls of their schemes allowing you to have the choice of not proceeding any further.
However, it is often advisable to seek the impartial advice of an independent solicitor who will check the finer details of your proposed arrangement. All contracts are supervised through the Equity Release Council which has been established to safeguard your interests and you can always contact them for advice.