Turning some of your home into cash is a big step and one which deserves careful consideration. The equityRelease Centre pride ourselves in spending time with all interested parties to discuss the implications of such Equity Release schemes and explore alternatives.
The list below shows the questions we get asked most frequently. Click on any of the links in the following list for a brief discussion of each:
Questions:
The list below shows some of the alternatives to Equity Release. Click on any of the links in the following list for a brief consideration of each:
Discussion of the alternatives
If you have a specific question that is not answered here
or
you would like advice and a quotation specifically tailored for you then complete the enquiry form and we will get back to you.
Are there any payments?
This will depend on the type of scheme chosen. With a Lifetime Roll Up Mortgage, you pay nothing back during the term of the mortgage. The loan plus interest and any other charges are repaid once the house is sold and the house will be sold when you either die or move into long term care (or in the event of a joint plan the remaining partner has either died or gone into long term care). If you choose a reversion scheme you may have a nominal fee to pay on a monthly or yearly basis but this is usually very low. Should you prefer an ordinaruy mortgage you will of course have to make monthly repayments.
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What will it cost?
You will incur costs and these depend on the type of scheme you choose, you will normally have a valuation fee to pay, at time of application, the cost of which is determined by the value of your house. You may have lenders arrangement fees to pay, adviser's fees and solicitor's fees. Some of these fees can be added to your loan or you can pay them from the proceeds. Before proceeding we will provide you with a full Key Features Illustration of the plan we would recommend, which will outline all of these costs.
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Just how soon could I have the money?
In the case of an ordinary mortgage you could usually expect to receive the money within 6 weeks. In the case of Lifetime Roll Up Mortgages or Reversion schemes we would hope to have them completed within 8 -10 weeks , although it can take longer, with a lot depending on just how quickly your solicitor acts.
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Could I lose my home?
In the case of all SHIP approved Lifetime Roll Up Mortgages, Home Income Plans or Rev ersion schemes - NO. Providing you keep to the scheme rules you can be assured you can remain living in your home for just as long as you want to. Should you chose an ordinary mortgage, then if you didn't keep up the repayments, the mortgage lender could reposess the home.
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Doesn't it reduce future inheritances?
Certainly the interest rolled up on Lifetime Mortgage schemes (or reduction in the value of the portion sold, plus any share of future increases in value in a reversion scheme) will reduce the estate's value and this is why we suggest you talk it over with your family. However, as many people are finding, it can allow you to enjoy helping family members during your lifetime - possibly to help grandchildren buy they're first home.
Also for single or divorced people if their estate (including the home) exceeds the level of inheritance tax (£325,000 2009/10) it may also reduce, possibly even avoid the estate being liable for any tax (40% of everything over £325,000). If you are married or widowed and your late spouse under the terms of their will left all of their estate to you , the limit before any Inheritance Tax becomes liable is now twice the limit (i.e £650,000 2009/10) Indeed some of the lump sum realised from equity release can even be invested in trust for your children, so that growth made on it would normally fall outside of your estate for tax purposes. However, as the rules on Inheritance Tax are liable to change and equity consumed by any equity release scheme may exceed any Inheritance Tax savings made, we strongly suggest that Equity Release should not be considered solely as a means of mitigating Inheritance Tax but that any Inheritance Tax benefit which may be gained should only be a secondary benefit, to more important needs.
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Could there be negative equity?
No. Whilst under a Lifetime Mortgage the debt will grow over time ( with the interest rolled up on the amount of capital borrower ), providing you keep to scheme rules, any SHIP lender guarantees never to ask for more money back than the house could be sold for. Therefore you can be reassured that your children or other beneficiaries will never inherit a debt.
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Will it affect my benefits?
Yes. Any income or capital generated could affect any means tested state benefits you are entitled to or may otherwise be entitled to. If in doubt you should only consider releasing equity after checking your entitlement/continued entitlement with the Benefits Agency, Citizens Advice Bureau or Local Authority. If equity release would affect your benefits you should only consider it if you are happy that the benefits gained outweigh any loss and that you would be able to manage on any reduced income.
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Will Equity Release prevent me moving?
No. All the schemes recommended by us allow you to move providing you want to move a normally constructed property located somewhere in mainland England Wales or Scotland and it is Freehold or Leasehold wit sufficient remaining years left on the lease. However, if you move to a cheaper property, to avoid a loan representing an irresponsible percentage of your new home, you may be asked to repay some of the original loan, to keep the new loan in proportion to the cheaper property. If so, this would normally come from the profit made on moving.
If you want to move into sheltered accommodation however, depending on the plan rules you may not be able to transfer the plan on to such property and so should you still want to move into such property, or simply want to move to any other non standard constructed property such as a static caravan, you will have to repay the loan with any possible Early Repayment Charges, on the move. This could leave insufficient money to buy your desired property.
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What happens if I need Long Term Care?
If time comes when, one applicant in joint cases requires professional care, the other applicant still retains the right to live in the home and the plan continues. In the case of a single applicant needing to move into a Residential or Nursing Home the house is sold and the provider repaid. The amount repaid would normally reduce the value of the home in any calculation of assets used by the Local Authority when assessing your ability to pay.
From April 6th 2009 anyone living in England with assets over £23,000 (2009/10) will need to pay for their own care until assets fall below £23,000. This leads to further erosion of your estate. The relevant limits for Scotland and Wales are £22,500 and £22,000 respectively (2009/10). You could, however, use some of the equity released to purchase a Long Term Care protection Plan which would help provide for such care costs. (For further details on Long Term Care protection please visit our specialist website www.adviceoncare.co.uk.)
Can I pay off the loan?
Yes - if a Lifetime Mortgage scheme However with most schemes you may need to pay an Early Repayment Charge should you want to repay within an agreed time period normally first 5 or 10, although with a few it may be at anytime.
However, should early repayment be a high priority for you, we are now able to offer a scheme which would allow you to repay at anytime without any penalty, you would simply pay back the original amount borrowed plus interest accrued up to the time you wish to repay.
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Are there any properties on which you cannot release equity?
- Yes -
Properties not on mainland UK. (Although there are a few lenders now willing to lend in N. Ireland)
- Properties worth less than £40,000 would not be attractive.
- Properties not of standard construction including - homes built of prefab concrete, caravans, mobile homes, wooden chalets, boats etc
- Leasehold properties where less that 75 years of the lease remain, or when the property is part of a trust.
- Freehold flats may also be unsuitable. As might some former council houses and one bedroom properties to some lenders.
Should your property fall into one of the last two, The equityRelease Centre may still be able to find a suitable lender. If in any doubt please complete our online enquiry form and we will look into it for you.
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Should your property fall into one of the last two, The equityRelease Centre may still be able to find a suitable lender. If in any doubt please complete our online enquiry form and we will look into it for you.
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Who sells the property on my death?
Interest Only Mortgage / Lifetime Mortgage schemes.
As you do not sell any legal ownership, it remains for your representatives to arrange the sale of the property and pay the loan and interest back to the lender, retaining the balance. As interest is due until such time as the debt is repaid, it is in their interest to try and obtain the best possible price as quickly as possible. Specialist lenders do, however, retain the right to sell the property should it remain unsold after a prescribed period of time. This period varies between providers and can be from 6 - 18 months. Your estate will be responsible for all selling costs.
Home Reversion plans
If you sell 100% of the ownership to a company, the provider will arrange the sale of the property. If you sell less than 100% the majority of companies will arrange the sale. You or your estate will still receive the proportion of the home's value (minus costs) you originally chose to retain. Regarding sale costs, some will split the costs with you or your representatives in the same proportion as the percentage you sold to them, whilst others may charge you all the fees.
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What about Taxation?
The lump sum produced from releasing equity via a lifetime mortgage or reversion scheme is free of both Capital Gains Tax and Income Tax. Should, however, you put the money into a deposit account you will be taxed on the interest you receive from it. If you wish to invest some of the equity released for income, we can offer you advice on how to achieve this tax efficiently.
The income produced by a reversionary scheme is normally provided by an annuity. This allows a percentage of each income payment to be regarded as a return of the capital used to purchase it, and therefore tax-free. The balance however, is deemed as interest and is taxed at source at 20%, unless the income together with your other income does not make you liable for tax when it could be paid gross. Higher Rate taxpayers would have additional tax to pay on the annuity's income.
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This section should not be regarded as a full discussion of all the points to consider but as a brief outline. As The equityRelease Centre only recommends plans which meet the Safe Home Income Plans (SHIP) criteria, you can be reassured that apart from discussing any concerns you may have, with us, it is a requirement of SHIP companies that you appoint your own solicitor to act on your behalf. They have to certify that they have discussed all points with you, before the company will release any money.
Couldn't we just borrow money to help us?
Yes. Even when retired, banks and building societies will offer loans and even interest only mortgages. You should bear in mind that the repayments will increase your outgoings per month, and so add further pressure to balancing the budget. Alternatively, some of your family may even be prepared to lend you money. Whilst this latter option should be the cheapest, many people decide not borrow from their family, preferring instead to profit from their own shrewd investment.
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Why not release capital by moving to a smaller property?
For those with large detached properties, moving to a smaller property could release considerable equity. Also for those who are willing to move from their own area to a cheaper one, considerable equity may be able to be released. In either case, moving would normally provide the cheapest option.
However, if you prefer not to move away from family and friends, or have a typical three-bedroom semi, you may find that moving to somewhere smaller, especially once the costs of estate agents, solicitors and removals are taken into account, may not release sufficient equity.
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Use existing savings?
Certainly if you have existing savings or investments, you should consider whether to use these to help you first especially if the returns on these investments are liable to fluctuations and/or are not returning (net of charges and tax) more than the interest which would be added to the loan.
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Applying for state benefits or grants?
If you are looking for extra income, and have not tried claiming any means tested benefits such as Pension Credit/Income Support, Council Tax Benefit etc, then you should certainly first look to see if you would qualify and check to see if the amount you would qualify for would meet your needs before proceeding with Equity Release. However should you not qualify , or your need is for lump sums and you could still survive if you lost any of these benefits you may have been entitled to or would now fail to qualify for , you may feel that it is still better to proceed w ith Equity Release. However we would strongly recommend that you should first check with the Benefits Agency/Pension Service or Citizen Advice Bureau, before applying for Equity Release.
Likewise if you want to make home improvements and need a lump sum you should first check to see if you would qualify for a Local Authority or Charitable Grant.
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Could we generate extra income by renting a room in our property?
Whilst this can produce valuable extra income and provide companionship, you may find your need is more for a lump sum or you may simply prefer not to share your home with a stranger.
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“Equity Release” includes home reversions plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration.
