Equity Release has come a long way since their introduction in 1965. As the over 55’s equity release market moves closer to the mainstream market, innovation, along with many new providers now means that equity release plans are becoming available for use throughout your lifetime. Traditionally, equity release was often considered a ‘one-off’ transaction. Today it has evolved into a financial product which can be utilised in a more strategic way, allowing you to drawdown additional cash, as and when required, from a pre-arranged Cash Reserve.
The typical ‘Drawdown’ Equity Release Plan allows you to take a relatively small initial lump sum of say £5,000 or £10,000. This is paid free of tax and can be spent as you wish. At the same time, a ‘Cash Reserve’ is set up, for an amount of your choice, subject to the provider’s maximum. This is similar to an overdraft. You don’t have to use it and most providers don’t charge anything if you don’t use it. You will usually have a telephone number to call to release funds direct to your bank. Some people use the reserve as a regular income, paid monthly or annually to boost their pension. Others use it as and when they require it, for holidays, to replace the car or for emergencies. As the release of funds is spread over time they are far more cost effective than traditional schemes where one would release a large sum of money in one go, where interest accrues on the entire amount borrowed.
With all schemes approved by the industry body called the Equity Release Council, no repayments of the amount borrowed are required during your lifetime. An interest rate, normally fixed for your lifetime will apply to the amount borrowed and the interest is simply added to the loan and repaid from the house sale after your death.
Another benefit of using a plan which has been approved by the Equity Release Council is that you must choose your own solicitor who will receive a full copy of the equity release contract prior to you going ahead, so that your solicitor can fully explain the scheme to you. As a standard, all Equity Release Council approved schemes guarantee you tenure in your own home for your lifetime and just as importantly, they also offer a “No negative equity guarantee”. This ensures that no matter how long you live or what happens to property prices, you will not have to pay any money back to the provider or leave your family with any debt.
For those who want to guarantee they leave something behind for their family, the ‘Protected Equity Guarantee’ available on some plans will ensure that a portion of the value of your home is protected either for use in later life or for your family as inheritance.
Equity release plans now fall under the protection of the Financial Conduct Authority (FCA) and the protection that this offers in addition to the safeguards offered by the industry body SHIP, means that equity release pans are now safer than ever.
The most common reasons that people take out an equity release plan vary from home and garden improvements, helping family financially, either buy their first home or move up the property ladder. Other common uses include paying off a mortgage, buying a second home abroad and taking a holiday of a lifetime.
Many don’t realise that if you already have an equity release plan, you may be able to switch it to a newer scheme with another provider. This could be to obtain better terms such as a lower interest rate, more flexible features or to release more capital.
Of course, that doesn’t mean that it will automatically be right for you, as there can be more suitable alternatives. The key is to discuss your options with an equity release specialist adviser who will explain all your options and allow you to make an informed choice. I recommend you involve your family in the decision and attend meetings with one or more of the family members present. If you and any of your family members want to find out more about using your home as capital, please contact me on 01204 884545. Alternatively, click here to fill in our contact form and we will be in touch.
Equity released from your home will be secured against it.