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Equity Release: Exploring the facts

Your Money
Monday 29 August 2022
When you’re considering whether equity release is the right option for you, there are several positive and negative aspects that you need to balance up. There are also a variety of common assumptions about equity release that you might already be aware of, and you need to make an informed choice before you decide whether or not to go for it, so it’s going to be helpful for you to have equity release explained in more detail.

There are two main types of equity release plans currently available, lifetime mortgages available for clients 55 and over, and home reversion schemes which allow clients aged 65 or over to access some of the equity (tax free cash) tied up in their homes.

Could my monthly outgoings increase?

The most popular form of equity release is a lifetime mortgage, a loan secured against your home. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end when you or the last remaining applicant pass away or move into long-term care. Although you can choose to make payments if you wish.

Key Equity Release offer lifetime mortgages only, which is a loan secured against your home, but the less popular type of plan, the home reversion plan, is offered by some other providers. With this plan you sell all or part of your property to a reversion company in exchange for a cash lump sum, with no interest to pay on the money released, and no monthly payments to make.

Will my overall debt rise?

Yes, equity release is typically taken as a lifetime mortgage, which is a loan secured against your home. Interest builds up throughout the lifetime of the loan and is added to both the loan and the interest previously added (known as compound interest). This quickly increases the amount you owe.

The positive side of this is that in the short-term, this frees up funds that you could use to make your retirement more comfortable.

In the typical scenario where the repayment of the lifetime mortgage on the last remaining applicant’s death or entry into long term care is made by the executors of your property, the equity release lender will need to be notified of your death or entry into long term care. The executors will then receive a redemption statement telling them the redemption figure and how much interest is accruing. Until the equity release is paid in full, interest will continue to accrue. There’s typically a 12-month period given for the loan to be paid off, and if it takes longer than this, the lender usually reserves the right to intervene and help with the sale of the property.

If you take out a home reversion plan, no interest is charged. And dependent on the plan, there may be rental charges to pay. On repayment of the home reversion plan the reversion company gets their share of the proceeds of the sale, if you sold the entire property to them, they will get all the proceeds.

Could it reduce my family’s inheritance?

Taking out equity release will reduce the value of your estate and the amount of inheritance your family will receive when you pass away. If this is something you’re particularly concerned about, we offer some plans that include inheritance protection. This guarantee secures a percentage of your home’s future value, meaning that you can pass it on to your beneficiaries, no matter how much is outstanding on your loan.

Will the loan be secured against your home?

A lifetime mortgage is a loan secured against your home, therefore you still retain ownership of your property. You will also still be responsible for maintaining the property. The property the lifetime mortgage is secured against will also need to be your main residence.

What if I decide to move house in future?

Lifetime mortgage plans which meet the Equity Release Council’s standards give you the freedom to sell your house and transfer the debt to your new one, providing it meets certain criteria. All of Key Equity Release’s lifetime mortgage plans meet the Equity Release Council standards.

If your new property is of lower value, the lender may require a partial repayment of the loan to keep within lending limits at the time however the lender cannot impose any early repayment charge.

What if I already have a mortgage?

You can still take out a lifetime mortgage even if you have a mortgage on your home, however the outstanding mortgage must be repaid on or before completion, you can use the proceeds of the equity release to do this.

Always bear in mind that equity release does reduce the value of your estate. This is the main downside to equity release, because you are essentially borrowing some of your home’s value but, the loan, plus roll up interest, is repaid when the plan comes to an end.

Can it affect your benefit applications?

If you release equity, it could impact any means-tested benefits you’re currently receiving. It can also affect your entitlement to obtaining means-tested benefits such as Pension Credit, Council Tax Support and help with health costs. This is because the government looks at how much you have in savings when judging your eligibility for these types of benefits.

Our advisers will undertake a full benefits assessment during the equity release process to ensure you know exactly how you will be affected. If you have any concerns it’s best to contact your local Department for Work and Pensions, Benefits Agency or Citizens Advice Bureau to confirm the final position with them.

What about negative equity?

You might be concerned about what would happen if you release equity now and then the value of your home falls below the cost of the outstanding loan plus roll up interest by the time your plan ends. Negative equity results from anything that causes real estate value to fall, such as a recession or depression.

All of our plans meet Equity Release Council standards and come with the no negative equity guarantee, meaning you’ll never owe more than your home’s worth.

How we can help you decide

Taking out equity release is a big decision and if it’s something you’re considering, you’ll need to weigh up all the equity release facts and do your research first. There are positives and negatives to equity release and whether this is the right solution for you is very dependent on your unique personal circumstances.

If you’re looking for a lifetime mortgage or you’re still deciding and just need some extra guidance, choose Key Equity Release to get advice specifically tailored to you. More than 16,000 of our customers have given us a five-star rating on Trustpilot, so we know how to help you. We won’t pressure you to make a decision, and an initial consultation is always free of charge. Our equity release advice relates to our range of Key branded products only, and our fixed advice fee of £1,299 is only payable on completion of a plan.

Get in touch with us today to book your no-obligation appointment with us.

Things to consider

  • All our equity release advice relates to Key lifetime mortgages only - a loan secured against your home

  • Equity release will reduce your estate’s value and may affect your entitlement to means-tested benefits

  • A lifetime mortgage may result in limited or no property equity remaining and will reduce your financial options in the future

  • The loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care

  • £1,299 advice fee only payable on completion

Page last updated: Tuesday 16 April 2024