With greater flexibility and a growing range of products, equity release is attracting more homeowners looking to access cash from their property.
Retirement traditionally meant a carriage clock at 65, downsizing and a quiet life, but the milestones of later life have shifted. With more of us choosing to work flexibly in our 60s and 70s and living busy lives, equity release has become a golden goose which allows us to easily access the value tied up in our homes. The product has grown in sophistication over the past 30 years and now offers complete flexibility to suit the needs of individual homeowners from the age of 55.
Russell Carter, mortgage and protection adviser, Broadland Consultants, has seen demand grow for equity release and says that it has become a more mainstream financial product.
“I’ve been advising on property finance for 38 years and equity release for 30 of those, but the product has changed exponentially in the last five years.
Rates have dropped significantly and are now close to a standard variable mortgage rate – with equity release, rates are fixed for life, so it’s an incredible moment to secure low-cost borrowing. Many people are stunned by how low rates are and it’s often cheaper than a bank loan, so it becomes a no-brainer for many applicants.
Originally equity release products were designed so you never made a payment and the loan accrued interest, but now you can choose to pay the interest each month so the debt never grows. There is also an option to overpay or repay after a certain number of years with little or no redemption penalty – equity release has become far more flexible and you can even use it to purchase a property and retain more of your capital as savings.Russell Carter, Mortgage and Protection Adviser, Broadland Consultants
Another aspect of equity release which has evolved is the safeguarding undertaken when applying for lending.
“In as many cases as possible, a family member should be present at meetings to ensure everyone is aware and comfortable with the decision to take equity release.
We undertake a thorough fact-finding process to establish a homeowner’s situation and aspirations –this enables us to prepare a key facts illustrationwhich we then present to the client and their family. This is subsequently subject to independentlegal advice to ensure that equity release is theright financial decision for the applicant.On average, the process will take 6-8 weeks,plus two weeks for legal work, with around onein six cases completing successfully.
Equity release isn’t income tested but purely based on age and a property’s value and we have seen a shift in younger applicants looking to access cash from their home for a wide variety of reasons. Most commonly, applicants are looking to clear the remainder of their mortgage and equity release gives them financial flexibility, while others want to help a family member get on the property ladder or cover medical expenses. Equally, I’ve worked with clients who have used equity release to achieve their ambition to travel the world, buy a motor-home or who simply want to replenish their savings to enjoy later life. The flexibility of equity release means that you can create a pre-approved, reserve account and draw down cash as you need it, which offers complete peace-of-mind for the future, as we never know what life is going to throw at us.”
What’s your type?
Typically offering up to 60 per cent of the value of your property, there are two main types of equity release:
Retaining ownership, there are several options including ring-fencing a percentage of the value of the property as an inheritance for family, making repayments of the interest or capital, or letting the interest roll-up which will be repaid upon death or if the owner moves to long-term care.
You sell part or all of your home for a lump sum or staggered payments but have the right to live in the property rent-free until death, with responsibility for maintenance and insurance. You can ring-fence a percentage of the value of the property but this remains constant, despite any increases in the property’s value.
This is a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release, home reversion plans and lifetime mortgage are complex products and you should request personalised information. Equity release could affect your income tax position and your entitlement to state benefits; it could also restrict future options for moving house or paying for long term care. If using an equity release plan to consolidate debt, you are taking a previously unsecured debt and securing it against your home. Equity release could reduce the value of your estate that your beneficiaries expect to inherit. You should talk to them before committing to a plan. Using equity release to raise investment capital is inadvisable under most circumstances and you should talk to an investment adviser if this is your intention. We can arrange this for you. Broadland Consultants Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 958621.