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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 802 1051
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Question
What will happen to my home if I use equity release?
Please could you advise on what will happen to my home if I take out an equity release plan? Will I remain the owner, or will the equity release provider take ownership of part or all?
If the provider is also the owner, does that mean I will have fewer rights over what I do with the house and what happens when I come to sell?
Answer
Thank you for your enquiry and I can understand at this stage you have many questions as releasing equity from your home is a big decision. However, I can reassure you by informing you that one of our expert advisers will answer any of your questions without obligation or involving any initial fees.
To explain equity release in basic terms, it allows homeowners over the age of 55 to release money from their property while remaining in their home and without the need to make monthly contractual payments.
There are two main types of equity release products available in the market today:
Firstly, a Lifetime Mortgage is the most popular form of equity release, and it is essentially a loan secured against your home, which allows you to release money as a tax-free cash sum. Alternatively, you can raise an initial tax-free cash lump sum and then have access to a cash reserve facility to drawdown further capital in the future.
The loan is usually repaid from the sale proceeds of the house on the death, or entry into long-term residential care of the last surviving borrower. The beneficiaries of the estate will then sell the property to repay the loan to the provider, or they can retain the property if they can repay the provider from their personal means.
With a lifetime mortgage, the borrower retains 100% ownership of their home, and the main difference between a lifetime mortgage and a conventional mortgage is that the customer is given a choice whether to make payments to service the interest.
If the customer or their family chooses not to make flexible adhoc or monthly payments, the loan will roll-up with compound interest.
The second equity release option is a Home Reversion plan which accounts for a small proportion of the market, and with this type of plan, the homeowner sells part or all of their property to a home reversion provider in exchange for a tax-free cash lump sum.
The home reversion provider becomes the legal owner of the share they have purchased, and the former owner retains beneficial ownership with their interest protected by the establishment of a lifetime lease, which guarantees the customer occupancy of their former home, or share of the portion they have sold for life.
There are no monthly repayments to make and on death or entry into long-term residential care, the property is sold, and the home reversion provider receives the proceeds of their share of the property, and any remaining share is returned to the estate of the customer.
Here at Equity Release Supermarket one of our expert equity release advisers who are totally independent and are able to advise on both plans, will answer any questions you may have.
Furthermore, they will assess your current situation and after discussing all your options including downsizing to release equity, RIO’s, retirement mortgages and equity release, they will make a formal recommendation. Our advisers charge a flat fee, and you will not pay for their advice until any application completes, and this is after you have taken your own independent legal advice.
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Question
Power of attorney: How does this impact equity release?
My sister and I have been appointed power of attorney for my mother and we are planning to release equity on her home to make adaptations and pay for a carer.
How will this affect the equity release process? Do we need to get our solicitor involved and do we need any special documents?
Answer
I am sorry to learn that your mother requires care, and I am happy to address your questions. However, regarding your mothers’ health, you have not indicated if she still has capacity to make her own financial decisions, or if she needs you and your sister to make decisions for her using your registered power of attorney.
Assuming your mother has lost the capacity to make her own financial decisions, and you need to use your registered power of attorney to help her, in general terms the capital raised from equity release must be for the benefit of your mother, including your objectives of making adjustments/improvements to her home to adapt it to her needs, and to pay for her care.
If your mother has not lost capacity to make her own decisions, but she needs you and your sister to help and guide her to raise capital, you can fully support her throughout the application process, as we fully recommend family and friends to become actively involved in the decision-making progress.
At this stage of your research, I would recommend that you speak to one of our independent expert advisers who can help and guide you to achieve the best outcome for your mother. Our advisers will answer all your questions and inform you if your mother should apply, or if you are able to continue as power of attorney.
If the adviser suggests that you use the registered power of attorney, the provider will require the original power of attorney document or a certified copy before the application completes. To confirm, a copy must be certified by a solicitor or notary public person.
The equity release process includes a full assessment of a customers’ circumstances by an adviser via telephone, face-to-face or video, zoom meetings. Your adviser will formally present their advice and if you accept their recommendation, your mothers’ home would be independently valued, and the provider would make you an offer.
To accept the offer, you would do this with your own independent solicitor, and the advice process takes 6 to 10 weeks, and you won’t pay for the advice until your application is complete and you are 100% satisfied.
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Question
What are the risks of equity release?
I own a three-bedroom house which is valued between £450,000 and £500,000 and I would like to use equity release to free up approximately £80k to pay for my grandchildren’s university fees.
What are the risks of taking out equity release?
I am concerned what might happen if house prices fall and whether I might lose out through the effects of compound interest. What should I watch out for?
Answer
Thank you for your questions, and I hope your grandchildren thoroughly enjoy university. Here at Equity Release Supermarket, we have noted that the transfer of wealth to family members at a time when they most need financial help is becoming increasingly popular. The most important consideration for the transfer of wealth is to make any customer aware that once the capital has been gifted, they can’t of course use this for their own retirement aspirations.
Assuming you do not feel that you will need the capital in the future, equity release may be an option for you, and at this stage it would be best to discuss your plans with an expert whole of market independent adviser who can discuss your options in more detail.
I accept your concerns about the value of your home because there is no guarantee with house price inflation. We have all seen the upside of house price inflation, but we have all observed the risks as the market can correct itself and fall at times, with the timing of these ups and downs impossible to predict.
Equity release is an opportunity for customers to release some of the equity from their home, and this can be achieved through either selling a part of the property in exchange for a cash lump sum, known as a home reversion plan, with a guarantee to live in the property for the rest of their life.
The alternative option to a home reversion plan is to retain 100% ownership of your home and borrow the capital using a flexible, fixed rate Lifetime mortgage.
Lifetime mortgages have changed significantly over the last 20 years, with the introduction of more flexible features to help customers and their family manage the loan. For example, just this year, the Equity Release Council who are the custodians of standards in our industry, have included the option of making flexible payments as a standard for all providers to include within their plans.
This means that plans on the market are able to avoid compounding interest, as plan holders/and or their families can make monthly, annual or Adhoc payments to manage the loan. This feature coupled with a no negative equity release guarantee, can reassure customers.
Furthermore, one of the features that can be overlooked is the option to include an Inheritance protection guarantee, which allows customers to ringfence an amount of capital to be left to their beneficiaries.
As noted, at this stage of your research, I would strongly suggest you talk with one of our expert advisers as they can provide you with an illustration which will include everything you need to know in detail about equity release.
The illustration will highlight the features, benefits and any risks associated with the plan, and we encourage our customers to share this with their families, friends, or beneficiaries. Here at Equity Release Supermarket, we advise on all products including Lifetime Mortgages, RIO’s, Retirement Mortgages, and Home Reversion Plans.
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Question
Can I release equity on my buy-to-let to pay for upgrades?
I own a buy-to-let (BTL) house which has been in my possession for 15 years. It’s mortgaged on an interest-only basis but with house price rises in the last decade I believe I will have gained a great deal more equity.
I have heard new Energy Performance Certificate (EPC) rules are due to be enforced in a few years’ time and – as it stands – I cannot afford the cost of the upgrades.
Therefore, I am considering releasing equity from my buy-to-let to pay for the necessary work.
Please can you advise on whether I can release equity from a buy-to-let and also whether I could use the money for the purpose of EPC upgrades? I am 64, retired and also own my own home outright but would rather not release the money from this property.
Answer
Hello, and yes, I can confirm that it is possible to release equity from your investment property with a flexible, Buy-to-Let Lifetime mortgage, which allows you to release money tax free. You will retain ownership and continue to receive your rental income too.
How much equity you can release depends on your age, with a minimum age of 55, you must be resident in Scotland, Wales or England, and the property must not be lived in by you the owner, or your family.
As you are aged 64 currently, this would allow you to raise upto 28% of the property value. If you have a portfolio of BTL properties then they can all be considered individually for releasing equity – if needed.
Remember that any existing mortgage would need to be repaid before, or on completion of your new plan. This money invariably will come from the proceeds of the new BTL plan – hence I would need more information regarding the current balance of your mortgage to check whether this would be feasible.
The BTL property must be let out under an assured shorthold tenancy (AST). With flexible Buy-to-Let Lifetime mortgages, the amount borrowed (along with any charges or interest accumulated) will usually be repaid when you have passed away or entered long-term residential care.
You are allowed to make flexible payments to service the interest, or you can let the loan roll-up depending on your personal circumstances. You can use the capital released to complete home improvements including adapting your property to adhere to the new requirements to be eligible for the new minimum energy performance certificate (EPC).
At Equity Release Supermarket we have our team of experts who are specialists and will answer your questions, quickly and efficiently, and they will let you know how much you may be able to borrow with the interest rate applicable to the amount of capital you need.
Furthermore, this consultation with an adviser does not cost you anything, and if you proceed to an application, our fixed advice fee would only be payable once your application completes, and you have the funds to complete your objectives.
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