A Guide to Equity Release
Maxim Cohen, chief executive of The UK Adviser Group, talks about what exactly equity release is, why people might use it, why people should make use of it and why the use of it is increasing.
What is equity release?
The most common form of equity release is a lifetime mortgage. A lifetime mortgage is a loan secured against your home, it’s typically repaid when you or the last surviving partner passes away or enters long-term care. You retain full ownership of your property and there are typically no monthly repayments to make, as the loan, plus roll up interest, is repaid when the plan comes to an end.
How does a lifetime mortgage work?
If you are 55 years or older, you can qualify for a lifetime mortgage. The lifetime mortgage is calculated on your age and property valuation. The older you are, the more you are able to raise.
The loan can be taken in two ways, an initial amount that has a fixed interest rate (usually for the life of the mortgage) and a drawdown facility (that does not cost unless you use it).
As a member of the Equity Release Council, all of the lenders we work with have a “no-negative equity” guarantee and an option to protect an additional percentage of the property value for your children and family.
What can I use a lifetime mortgage for?
A lifetime mortgage can be used for any legal purpose. The most common purpose is to help children onto the property ladder, home improvements or simply planning for a retirement. Lifetime mortgages can also be used to purchase a property.
What does the property market currently look like for those taking advantage of a lifetime mortgage?
June 30 2021 marked the end of the first phase of the stamp duty holiday, meaning the property value threshold lowered from £500,000 on July 1 2021 to £250,000 until September 30 2021.
Recent statistics show that June 2021 was the busiest month for new equity release plans in Q2 2021. A grand total of 3,348 were agreed during this time. June also marked the first month in more than a year with higher lump sum plans agreed (1,726) compared to drawdown plans agreed (1,621).
The stamp duty deadline has encouraged more mature homeowners to pass on a ‘living inheritance’ so that younger family members can own a home too. It could also be used to help your children climb the property ladder.
How can someone start the equity release process and how will an adviser make the process smoother?
An equity release adviser will look at all the options available and see whether a lifetime mortgage is right for you. Initial advice from an adviser is free and you will be able to decide how much you need to borrow based on your needs and wants. Borrowing more than you need must be avoided at all costs since taking equity out of your home will mean there is less available to your estate in the future. An adviser will explain all the features and risks associated with a lifetime mortgage and will produce a personalised illustration.