Equity release involves unlocking part of the value of your property by turning it into a cash lump sum. You don’t need to have fully repaid your mortgage in order to do this. Whilst most homeowners will be looking forward to the day when their mortgage is repaid, others will reach a certain age and decide that they want to use the wealth that is tied up in their property either to support their standard of living, for life experiences, to help family members or to deal with large household repairs or other expenses.
It isn’t something to be done lightly because equity release can be an expensive way to borrow money. It can also be expensive to get out of, if for example one spouse dies and the other needs to sell the home. In other cases however it is an appropriate choice, if for example homeowners feel that they are too old and settled to consider downsizing.
There are different types of Equity Release including Lifetime Mortgages and Home Reversion Plans.
With the Lifetime Mortgage, homeowners over 55 years of age will continue to own their homes and will not make repayments whilst they are alive, but interest on the loan accrues quickly as it compounds each year, so is more expensive than a normal mortgage. This will quickly reduce the remaining value in their estates that they might have considered leaving in their will. The cost can be reduced if the loan is drawn down over a period of time and not in one lump sum.
With a Home Reversion Plan, you need to be over 65 years of age and a provider will buy a percentage of your home for a price below market value. You then live in the property rent free until you die, at which point the sale proceeds are used to make repayment.
Catherine Leftwich specialises in advising clients on Equity Release and works with clients and financial advisors across England and Wales. If you are considering Equity Release please contact Catherine for guidance. Catherine is also able to introduce colleagues from our Wills, Trusts and Probate team and Family Law team where further specialist advice is desirable.