Frequently Asked Questions
What is equity release?
Equity release is a way of getting cash out of your property without the need to move. You either borrow against the value of your home or sell all or part of it for a regular monthly income, lump sum, or the facility to get at equity as and when you like, or a mixture.
If you still have an outstanding mortgage on your property you will need to pay it off, either by using some of the proceeds from the equity you release or from other funds. Once that’s done, the rest of the money you release can be spent as you wish.
What types of equity release are there?
There are two main types of plan on the market:
Lifetime mortgages – this is where you take a loan out against the value of your property but you still retain ownership. There are no repayments to make and the loan is redeemed when you die or move into long-term care.
Home reversions – this is where you sell all or part of your home to a home reversion company, but you give up all or part of the ownership. There may be nominal payments to make and the loan is redeemed when you die or move into long-term care.
Is equity release right for me?
Remember that taking an equity release plan is generally for the long term, however there are flexible plans available that may fit your varying needs and some will allow you to repay in the future without any penalties.
How do I go about setting up an equity release plan?
You should always seek professional advice. It’s important to check whether there are other ways in which your financial needs could be met before choosing an equity release plan. Doing some research will also help when you come to speak to an adviser. You can find information from the financial services authority which issues a guide called “A Guide to Unlocking the Wealth in Your Home” or you may get information from individual SHIP members or qualified advisory firms and even from the internet, however there are no guarantees of accuracy with information off the internet.
Where to find Financial Advisers
FSA - www.fsa.gov.uk
Yellow Pages
Association Mortgage Intermediaries - www.a-m-i.org.uk
www.unbiased.co.uk
www.adviserlists.co.uk
Please also see our members directory list
What are the alternatives to equity release?
Before taking out an equity release plan, you should always check to see what the alternatives are. For example, you may have other investments, savings or assets to draw on, or you may wish to continue some form of paid work. You could downsize to a smaller property or one of lower value – perhaps by moving to a different part of the UK where house prices are cheaper. Downsizing is likely to give you maximum value from your home, but there may be disadvantages such as leaving a beloved home, or family and friends. You could also consider renting a room in your home, or taking a loan from family and or friends but ultimately you will need to weigh up along with help from your adviser whether any of these alternatives meet your requirements .
What is a no negative equity guarantee?
If you take out a SHIP approved lifetime mortgage, then your loan will come with a no negative equity guarantee.
When you die or move into long-term care, your home is sold and the money is used to pay off the loan. Anything leftover goes to your beneficiaries but any shortfall would need to be found from another source. To guard against this, SHIP members offer a no negative equity guarantee. With this guarantee your lender promises that you or your beneficiaries will never have to pay back more than the value of your home – even if the debt has become larger than this.
How much will setting up an equity release scheme cost me?
Costs vary from provider to provider, though you may want to use £1,500 as a very rough estimate, and you may have to pay your adviser You will generally need to pay for the following:
An arrangement fee to cover the provider’s costs of setting up the plan
A valuation fee to pay for your home to be valued
Legal fees to pay for your solicitor
Buildings insurance as loans are conditional upon you having the appropriate cover in place
There may be other fees depending on the type of plan you take, or there may be fewer fees. Your adviser will notify you of all the due fees and this will also be made clear on the Key Facts Illustration your adviser gives to you.
What is the standard process for taking out an equity release plan?
The general process followed:
Once you have decided that you want to know more about equity release set up a meeting with your financial adviser. He/she will review your personal circumstances to see if an equity release plan is the most suitable option for you, taking into account other sources of funding that you may have as well as any state benefit entitlements.
Based on this information, your adviser will provide you with some recommendations and a personal key facts illustration. This summarises all the important details and gives you a clear understanding of the costs involved. (You may want to involve your family at any or all of these meetings.)
If you are happy with the product being recommended then you will need to complete an application form. Your financial adviser will help you complete this and then send the form together with any fees to the provider.
You should contact your solicitor and inform them of your intentions to take out an equity release plan. It is wise to make sure the solicitor you choose is experienced in equity release as this will keep the costs to a minimum and ensure a smooth process. If in doubt you can ask how many transactions the solicitor has completed or if they specialise in equity release.
The provider will instruct a RICS qualified surveyor to come out and visit your home and produce a valuation for the provider. A copy of the report may be sent to you and/or your solicitor.
Once the survey is complete and the amount you can borrow has been confirmed, you and your solicitor will receive an Offer Letter. Your solicitor will talk you through the offer. When you are happy with it, you and your solicitor sign the acceptance form. This shows that you understand the features and risks of the plan.
Your provider will then carry out some legal checks in relation to the title of your property. Once this is completed the cash is released to your solicitor who will arrange for the funds to be transferred to you.
How long will it take to get my cash?
Timescales will vary from provider to provider. However, it usually takes 8-12 weeks from the day your application is received by the provider to the day your money is received by your solicitor.
How much can I borrow?
The amount you can borrow usually depends on you and your partner’s ages, health and the value of your property. A surveyor will be instructed by the provider to secure an accurate valuation of your property. If there are two of you jointly taking out the plan, then the amount you can borrow will be based on the age of the youngest borrower. If you are in ill health then you may be able to apply for more equity release.
For home reversion plans, the amount you can borrow normally depends on your age, health, gender, value of your property and the percentage you want to sell.
How old do I need to be?
For a lifetime mortgage you need to be aged 55 and over. If you are taking out the plan with your partner, then the age of the youngest borrower must be at least 55. For a reversion you must be a minimum of 60.
What impact will it have on my family?
Taking out an equity release plan could leave your family with little or nothing to inherit from your property when you die. You and your family need to feel comfortable with this possible outcome. It may be worth including your family in any discussions you have with your financial adviser or your solicitor. Also, make sure you discuss any concerns with your financial adviser as this will be taken into account when any recommendations are made.
However you may be thinking of releasing the equity to help younger family members get on to the property ladder or pay for school fees etc. Either way it is important to remember that any equity you take once it has been spent you cannot get it back, so it pays to consider any future requirements you may need such as care in the home.
What happens to my partner if I die?
If your plan is in joint names, then your partner will be able to continue to live in the property under the same terms. If it is in your name only, then unless the mortgage can be paid in full the property will have to be sold and your partner will have to find somewhere else to live. It is normally a requirement that the plans are written in joint names from the outset to ensure both parties have security of tenure, in the case of remarriage or co-habitation after a plan has been taken, you must inform your provider. It may not be possible to add your new partner to the plan, in which case they will not have security of tenure.
What happens if I want to repay the loan early?
If you repay early on a Lifetime Mortgage you may be liable for extra charges (called Early Redemption Charges) that can be expensive.
Most equity release plans are intended for the long term and you should therefore ensure you tell your adviser if you wish to repay your loan early, as there are products available with specific periods of early repayment penalties. Some products have no such penalties and some stretch for a pre-determined time such as 5 to 10 years.
If you have a home reversion scheme then you may have to sell the property to pay off the outstanding due amount. You may find that you have too little money to purchase another property. However SHIP reversion plans are portable to new acceptable properties.
Could this type of scheme help me reduce any inheritance tax?
The use of an equity release scheme will reduce the value of your estate. You should speak to your financial adviser if you are considering using equity release for this purpose.
What happens if a regulated company goes into liquidation and we have a lifetime mortgage with them?
If the provider is sold to another company, the other company will take on the portfolio of agreement and will carry on according to the terms of the agreement. There will be changes only if specified in the original contract.