Later Life Lending 55+
Equity Release Mortgages
DWG Mortgages based in Sittingbourne, Kent offer expert advice on Equity Release Mortgages.
Equity release is a way for homeowners over the age of 55 to turn the equity they have built up in their home into cash, without having to move house.
There are two main types of equity release. A lifetime mortgage lets you borrow money against the value of your home; and a home reversion plan (or home reversion scheme) means selling all or part of your home while continuing to live in it. Having access to a lump sum of cash can help you live a more fulfilling lifestyle into your retirement. This is just one of the reasons that many homeowners over 55 choose to go down this route.
Below, we will try to answer some of the questions you may have about Equity Release. However, we'd love to offer you a free consultation to discuss your needs and requirements. DWG Mortgages' head office is in Sittingbourne, Kent. We are delighted to offer phone and online consultations to clients across the UK.
Call us on 01795 608042 for a free consultation, or send us a message using our Contact Form.
- What is Equity Release?
- Who are Equity Release mortgages available to?
- What are the main types of equity release Mortgage?
- Why choose an Equity Release mortgage?
- How does equity release work?
- How much do you pay back with equity release?
- Can I sell my house if I have equity release?
- Do I pay tax on equity release?
- What are the risks and pitfalls of equity release?
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Equity Release is a way to unlock cash using the value of your property. If you are over 55 you may be able to remortgage to release equity, in the form of a cash lump sum, against the value of your home. The interest is rolled onto the remaining balance on your mortgage, and your loan is usually paid back when the property is sold.
There are two main types of Equity Release products - Lifetime Mortgages and Home Reversion Schemes. Equity release schemes are most appropriate for those who have no mortgage or almost paid off their existing mortgage (i.e. lower loan to values).
Later life mortgages are not for everyone and it’s good to consider all your options before going down this path. Our highly experienced team are here to guide you through all your options. Call us today to arrange a no-obligation initial consultation.
Equity release mortgages usually have a minimum age requirement. Often you need to be at least 55 or 60 years of age to qualify for a lifetime mortgage.
It’s estimated a large number of people in the UK are on an interest only mortgage deal with method in place to be able to repay. Interest only mortgages were considered an easy way onto the property market back in the 1990s where they accounted for one third of all mortgage loans sold with investment vehicles that have either stopped or significantly short of their intended targets.
For lots of borrowers, the hope was that rising house prices over the long term would mean they built up sufficient equity to be able to more than repay the mortgage. Others invested in schemes (such as endowments) which failed to reach targets of return leaving a devastating shortfall.
1. Lifetime Mortgages (These account for 99% of Equity Release Mortgages)
A lifetime mortgage allows you to borrow a cash lump sum against the value of your property. There’s normally a minimum age to take out a lifetime mortgage (typically 55 or 60). For the duration of these mortgages you do not have to make any monthly repayments (neither interest nor capital). This is because the monthly interest payments are added to the money you’ve borrowed. You won’t repay anything until your home gets sold either when you die or move into long term care.
This may sound very attractive but by not paying this interest and having it rolled onto the balance each month means the loan is getting bigger and bigger and eats into the money you or your beneficiaries would receive following the sale of your home.
Any Lifetime Mortgage Product recommended will come with the added assurance that it is a product recommended by the Equity Release Council The Equity Release Council exist to provide that extra layer of protection to clients.
You can be assured that any recommended product will always meet their standards set out below:-
- For lifetime mortgages, interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan. You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.
- You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.
- The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
- All customers taking out new plans which meet the Equity Release Council standards must have the right to make penalty free payments, subject to lending criteria – many products now allow for a 10% payment of the initial loan in every 12 month period following the commencement of the lifetime mortgage.
2. Home Reversion Schemes (Now only account for 1% of all Equity Release Mortgages)
A home revision scheme allows you to sell your home (or a part of it) to an equity release company. The money the equity release company will give you is likely to be lower than the market value of the property. Often the money can be given to you as a lump sum or as a regular income.
Then, when you pass away or go into long term care, the equity release company will sell your property and take back what you borrowed. Again, this could reduce how much your beneficiaries can inherit from your property.
So many factors can lead to the need to borrow or refinance in later life. If you’ve lived in your home for many years you are likely to find it may well have increased in value. You may want to release some of this equity to:
- help you enjoy your retirement
- pass some money on to a child or grandchild to help them get on the property ladder.
- boost your income or minimise inheritance tax liability
- buy a holiday home overseas
- borrow more money to refurbish their property to enjoy their retirement at home.
- pay off the balance at the end of their mortgage term for those with an interest-only mortgage
At DWG we will be by your side to discuss the options, routes and solutions available to you.
Nowadays there are hybrid equity release plans that do allow for interest payments to be made, therefore protecting your remaining equity in your property. For example, a lifetime mortgage with a draw down facility allows you to drawn down additional funds when required to pay for those little extras, whilst minimising interest accumulation.
Equity release is a way for homeowners over the age of 55 to turn the equity they have built in their home into cash while still living in it. The equity can be released either as a lump sum or as drawdown, which means that you take the money in smaller amounts over time. The two main ways to release equity are a lifetime mortgage and home reversion.
A lifetime mortgage is a loan where the released equity is subject to an interest rate. This interest accrues over the duration of the loan, and it is typically repaid when the property is sold when the homeowner passes away or moves into residential care. At this point, the initial loan amount and the interest is taken off the value of the estate to repay the lifetime mortgage. Monthly repayments are also possible with a lifetime mortgage.
Home reversion means that the loan provider buys a share of the property at less than market value. The homeowner can continue to live in the property until they pass away, but when the property is sold, the proceeds of the sale are split between the estate and the lender in line with their respective percentage shares.
Lifetime mortgages usually have a fixed or capped interest rate (the average interest rate was around 4 % in February 2022). The loan amount and the interest charged on these products can be repaid once the homeowner has passed away, or as monthly repayments.
The amount repaid for home reversion depends on the percentage share of the property that was sold to the service provider, and the value of the property at the time of the sale. This means that if the value of the property increases significantly over the duration of the loan, the service provider will receive a larger amount.
There may also be arrangement fees to pay for some equity release mortgages.
Yes. If you have taken out a lifetime mortgage on your home, this can be repaid at any point, although early repayment charges may apply, and these can be very high. Some providers also offer portable equity release schemes which you can transfer to a new property. In this case the property you move to must meet the lender’s criteria.
No. As equity release is a loan rather than a form of income, no income tax will be charged on it. As you are not disposing of the property and the equity release does not affect the value of the property, you are also not liable for capital gains tax when releasing equity on your home.
If the loan amount and interest on your equity release are not paid off until you pass away, the interest accrued can be substantial, which means that there will be less for your heirs to inherit. The interest on equity release can also be much higher than that of an ordinary mortgage.
If you change your mind or choose to move, there may be significant early repayment charges.
If you opt for a home reversion plan, the lender will pay you less than the true market value of the share of your property that they purchase, as you will continue to live in the property rent-free, and they may not get their money back for many years. As the share was sold at below market value, and as the value of your property may have increased since the equity was released, the service provider may be due a significantly higher amount than the original loan amount when the property is sold.
As the main pitfalls in terms of equity release mortgages relate to the impact on any inheritance you leave behind, it is a good idea to discuss your equity release plans with your family to avoid complications later on.
Planning your finances carefully into your later years can help you live a more fulfilling lifestyle into your retirement.
Even if you’ve been financially secure throughout your life, there are still important decisions you’ll have to make in your later years. Primarily your initial thoughts would be with regards to pensions and who you would want to leave you estate to by means of preparing a will. More frequently now we are seeing that people are seeking to remortgage or possibly refinance their home.
We have offices in Sittingbourne and Whitstable. Please call us today on 01795 608042.