What is equity release?
Equity release is a means by which homeowners can access wealth that is tied up in their property but without having to sell up and move. It allows people who own their home to borrow against the property or sell a part of it in return for a lump sum payment, regular smaller payments or a combination of both, while continuing to live there. Those wishing to release funds from their property through equity release will need to instruct an advisor with specialist knowledge of this area of financial planning, as well as a solicitor to carry out the required legal work to arrange a contract with an equity release provider.
Types of equity release
The two most common types of equity release are lifetime mortgages and home reversion plans. In both cases, funds amounting to the value of your property or property share can be accessed while you continue to live in your home, either by way of a single payment or by drawing a regular income.
The majority of people looking to take out equity release will opt for a lifetime mortgage. This allows you to take out a loan against your home while retaining full ownership of the property, with interest on the loan either fixed or rolled up (the interest due will be added to the loan and repaid later). No repayments are due while you continue to live in your home. Instead, the loan and rolled up interest will be paid by your estate on death, or when you move into permanent long-term care. If you share a home with your partner, the loan will not need to be repaid while either of you continue to live there. Lifetime mortgages are seen as a flexible way to release equity, with some allowing you to make monthly interest repayments in part or full. Some providers offer the opportunity to retain part of the value of your property, which can be used to increase the value of your estate on death. The amount that you can borrow will depend on your age and the value of your property, with the amount available to borrow normally increasing according to your age. Protection is offered by way of a “no negative equity guarantee” which ensures that, when your property is sold and all fees are paid, even if there are insufficient funds left to pay off your loan neither you or your estate will be liable to pay more.
Home reversion plans
Home reversion plans offer an alternative method of equity release by enabling you to sell part or all of your home in exchange for a large one-off payment or regular smaller payments. You are entitled to continue to live in the property rent free, although you must maintain and insure it. Beyond this, you will continue to have unrestricted use of your home on a lifetime lease with no interference from your provider. If you want to retain ownership of part of the property to increase the size of your estate on death, this can be ring fenced for later use. When you sell a share in your house to a provider, the share owned by you will always remain the same, regardless of any changes in property values. The percentage of the market value that you receive for your property will vary depending on your age and when you take out your plan, and different providers may also offer different rates. Once your plan ends the property will be sold, with proceeds distributed according to proportions of ownership. As with a lifetime mortgage, a “no negative equity guarantee” means that, if on selling the property there are insufficient funds available to repay your provider, neither you or your estate will be liable for further payments.
Who can access equity release products?
Equity release is used to benefit older customers who own their own home, or those with only a small mortgage left outstanding on their property. The basic requirements for accessing equity release are that you are aged between 55 and 95 years, live in England or Wales and own your own home with a value of at least £50,000. However, it should be noted that different types of equity release place different requirements on those applying. People seeking to arrange a lifetime mortgage will normally be able to do so from the age of 55, while those applying for a home reversion plan will have to wait until they are 65. If an application is being made by two people, both will usually need to be in the 55–95 age range.
Reasons to use equity release
- Pension supplement: Equity release can be used to top up your pension pot enabling home owners greater flexibility in retirement.
- Cost of living: Rising costs of living mean that many people are seeing their pension savings stretched – equity release can be used to give older savers a more comfortable retirement.
- Debt clearing: Equity release can be used to pay off outstanding mortgage, loan or credit card debt.
- Interest only mortgages: For those with interest only mortgages, equity release can be used as a funding tool to enable mortgage repayment.
- Early inheritance: Equity release can be used to provide family members with support to get on the property ladder or repay debts.
Why you need a solicitor to release equity?
Your solicitor will play a vital role in helping you release the value in your property by undertaking the legal work and giving advice as you go through your equity release plan application. Your solicitor will provide advice regarding the obligations and benefits of taking up a plan and ensure that you have a full understanding of the legal contract that you are preparing to enter into.
Contact our Equity Release Solicitors, Sheffield
At Wilford Smith, we have a wealth of experience in the area of residential property. As a firm offering a full legal service we are able to liaise easily with others within our firm with relevant expertise in other areas of law, such as the staff in our Estate Planning Team, ensuring that your equity release plan goes as smoothly as possible. We are based in Sheffield and serve clients across England and Wales. Find out more information on our fees here.
Contact our specialist Residential Conveyancing Team on 01709 828 044 today to find out how we can help with your equity release.