Equity Release

Equity release is a means of retaining use of your house or other object which has capital value, while also obtaining a steady stream of income, using the value of the house.

Types of arrangements

Lifetime mortgage - A loan secured on the borrower's home (a mortgage) is made to generate an income. Interest payments are added to the capital throughout the term of the loan, which is then repaid by selling the property when the borrower(s) die or move out (perhaps into a care home). The borrower retains legal title to the home whilst living in it, and also retains the responsibilities and costs of ownership.

Interest only - A mortgage is made, on which the capital is repaid on death. Interest payments are paid out of the borrowers' income whilst they remain in the property.

Home reversion - The borrowers sell all or part of their home to a third party, normally a reversion company or individual. This means all or part of their home belongs to somebody else. In return, the borrowers receive a regular income or cash lump sum (or both) and they continue to live in their home for as long as they wish.

Shared appreciation mortgage - The lender loans the borrower a capital sum in return for a share of the future increase in the growth of the property. The borrowers retain the right to live in the property until death. The older the client the smaller the share required by the lender.

Home Income Plan - A lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender, which is often an insurance company.

Independent Financial Advisers deal with mortgage lenders on a daily basis and have access to the most comprehensive and up to date mortgage products, so they can explain it all to you in detail, including all the small print.

Advantages of equity release

It can provide a lump-sum of tax-free cash or a steady income (annuity), which can be index-linked, for the rest of your life.
It can reduce the amount of inheritance tax paid by your estate.
The No Negative Equity Guarantee (NNEG) protects the borrower in the event of a downturn in the housing market.
If interest rates fall, borrowers are free to refinance their mortgages at a lower cost with other providers.

Disadvantages of equity release

It may decrease the amount of money your family will inherit upon your death - assuming the value of the property grows at a slower pace than the interest rate on the mortgage.
It may reduce the amount that you can bequeath to charity.
In the UK, it may impact any means tested benefits that the borrower may be entitled to.

The UK equity release market

The UK equity release market is basically made up of two types of equity release plan. The most popular plan is a lifetime mortgage - where the homeowner retains ownership of the property but the property is charged with the repayment of a loan or mortgage, which accrues rolled up interest over the period of the homeowner's lifetime.

The other type of plan is a reversion plan - where the homeowners sells all or part of the property to the equity release provider in return for a right to remain there rent free.

The UK equity release market is now fully regulated. Both lifetime mortgages and home reversion plans now fall under the remit of the Financial Services Authority (FSA).

For equity release we are usually paid by commission from the lender. Alternatively, you may choose to pay a fee, typically £500, and we will refund any commission received.