Guide to Equity Release

Transcription

1 Guide to Equity Release

2 Guide to Equity Release What is Equity Release? Everybody has plans for their retirement, whether it's an investment in a motor home, a caravan or that dream conservatory. Equity Release enables you to free up cash locked away in the value of your home, cash you've worked hard for. No matter the desire, Equity Release can help you generate enough capital to live out your dream. Unlocking the value in your property Equity Release is a product that allows you to unlock value in your property. It can be used for a variety of purposes, but over half of those with Equity Release use some or all of the cash they release from their home to improve where they live. Others use Equity Release to help their family, using it as inheritance money. You will receive a cash lump sum or a series of payments, giving you the freedom to spend the money as you please. You can also stay in your home for as long as you choose. To qualify for Equity Release, you must be over 55 - if you are taking out the plan as a couple, this age applies to both of you. Your home must also be worth at least 70,000 and you must be living in the UK Mainland or Northern Ireland. There is a minimum and maximum limit you can release from your home and this will vary according to your provider and the type of plan you go for.

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4 What Equity Release Plans are out there? There are a wide range of plans available which can be tailored to suit you and your needs. There are two main types of Equity Release Plans: Lifetime Mortgages and Home Reversion Plans. 1. Lifetime Mortgages With this type of plan, instead of paying the interest off every month from your income as you would with a residential mortgage, the interest is added to the amount of money that you have borrowed. It doesn't have an end date or fixed term of borrowing, and the mortgage is only repaid if you move into long-term care or in the event of your death. You still remain the owner of your home, you'll never have to move out (unless you choose to), and you'll never pay back more than the value of the property. There are different types of Lifetime Mortgages: 1. Lump-sum This is the standard form of Lifetime Mortgage. The interest payable is 'rolled up' year on year until you die or move into long-term care. This means that you have nothing to pay for the rest of your life and interest rates are fixed at the outset. 2. Drawdown This is a flexible Lifetime Mortgage where you take a smaller amount from the outset. You can then take out further money, but this will be drawn down and since you pay interest only on the money you've taken, the overall cost could be considerably lower. 3. Interest Repayment Another way to reduce the cost is to allow borrowers to pay off some, or all, of the interest during the life of the loan.

5 2. Home Reversion Plans This type of plan involves selling part of, or the entirety of, your property to a reversion provider, leaving you as a co-owner. You usually sell between 25% and 100% of your property, but you can enjoy the right to live in your home for the rest of your life. Generating significant funds, this type of plan will assist many retirees in achieving their dreams. Both of these plans allow you to remain in your own home and release cash to make the most out of your retirement: take the holiday of a lifetime, buy a new car, leave money to your family or even make home improvements. Here are some considerations to take into account when deciding on Equity Release: Costs can be very high and in some cases it can amount to most of the value of your home with not much left for your family in their inheritance. If you decide to end your Equity Release Plan prematurely, early repayment charges may occur. Your loan has interest building up over the full term of your plan. Drawing extra money from housing equity might mean you lose eligibility for pension credit and council tax benefit.

6 Is Equity Release right for me? There are a few things to consider when deciding if Equity Release is the right path for you to take. Remember that releasing equity from your home is a lifetime commitment. Repayments usually occur after your home is sold, which is when you or your partner pass away or if you move into long-term care. If you do decide to repay earlier than this, early repayment charges may apply. Taking out an equity plan can reduce your state benefits and affect your tax position. Be aware that all Equity Release plans will reduce the value of your home. With a Home Reversion Plan the percentage of the property you sold reverts back to your plan provider. This usually happens when you and your partner pass away or move into long-term care. Before you commit to Equity Release, you should consider the following to make sure it is the right path for you: What are your plans for the future? Do you have any medical issues or anticipated poor health? What level of long-term income do you require? Do you have any active commitments? Are you planning on moving home again? If you intend to leave inheritance for your children, Equity Release could greatly impact on their future investments. Also consider the impact it may have on receiving a state pension.

7 Take into consideration the benefits of Equity Release: People use Equity Release to fund a number of things in retirement, including home improvements, new cars and holidays. Common reasons for taking out Equity Release include the desire to maintain a certain lifestyle into retirement and to finance one-off events. Additionally, some people simply do not want to move out of their home and away from family and friends, but need additional finance to be able to stay there. With Equity Release you have the flexibility to receive a tax-free cash lump sum and will not have to move home. With most plans, you also have the right to move to another suitable property without any financial penalty. You also have the option to guarantee an inheritance for your family.

8 Equity Release Council The Equity Release Council is the industry regulator and a standard setter. Previously known as Safe Home Income Plans (SHIP), members uphold exceptionally high standards, often exceeding the FSA requirements. Our partner only gives advice on providers that are members of the Equity Release Council, ensuring that your property and money is protected. What are the Equity Release Council Guarantees? As you would expect from such a council, there are strict criteria that must be respected. This is outlined in the Equity Release Council Code of Conduct. The following promises are put in place to protect their customers: Customers will be entitled to remain in their property for the remainder of their life, as long as the property is their main residence. Customers must be provided with fair, simple and complete information about their Equity Release Plan this will include details on benefits, limitations, all setup costs, tax implications, their position on moving house and also how changing house values will affect their loan. Customers are entitled to transfer their Equity Release Plan to another property without incurring any financial costs. Customers can choose their own independent solicitor to complete the legal work involved in the Equity Release process. The provider must then supply all details of the benefits to the customer and the solicitor. Due to their no negative equity guarantee, all Equity Release Council members promise that their customers will never be put into a position where they owe more than their home is worth, meaning that their estate will never inherit a debt from the Equity Release process.

9 What companies are members of the Equity Release Council? The following are all members of the council: Aviva Equity Release Bridgewater Equity Release Hodge Lifetime Just Retirement LV= More2Life NewLife Partnership Legal and General

10 FAQs 1. Do I qualify? To be eligible for our Equity Release products you need to be 60 and over (55 for some other providers) and own your own UK based home. Your home will need to be of standard construction and in good repair. To find out if you are eligible, we would recommend speaking to our financial adviser. 2. Are they safe? Both Lifetime Mortgages and Home Reversion Plans are regulated by the Financial Conduct Authority. This is the independent body that regulates the financial services industry in the UK, setting the standards that firms must meet and taking action against firms if they fail to meet the required standards. 3. Can I use an Equity Release Plan as a way of reducing Inheritance Tax? An Equity Release Plan will reduce the value of your property this may have a knock-on effect with potential Inheritance Tax. With this in mind, yes it can be used to reduce Inheritance Tax, however, we strongly recommend speaking to our qualified adviser as each case is different. 4. Will I still own my own home? Under the terms of a Lifetime Mortgage equity plan you will continue to own your property. Any changes in equity amount will continue to impact the value of your home. With a Home Reversion Plan, if you sell the entire property then you are required to give up the deeds and you no longer own the home, although you are entitled to continue to live at the property rent-free. Given the complex nature of partial equity plans, consulting our qualified professional is advisable.

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