Equity Release

Later Life Lending, also known as Equity Release or a Lifetime Mortgage, is a popular way to release money as a cash sum or regular income in retirement.  You effectively unlock the value of your home to use as you wish now, and it is paid back when you either go into long term care or pass away.

It has helped many achieve financial freedom in their later years.  Often used to top-up retirement needs, it may also provide the ability to help out with large outgoings such as home deposits, gifting an early inheritance to your children, or perhaps it funds the holiday of a lifetime or a home renovation. 

These days there are a huge number of plans available depending on your individual circumstances and objectives – you can choose to pay or not pay interest, to safeguard a percentage of your home’s value or to release the maximum possible.  We are completely independent and impartial and will be able to search the entire market to find the right plan for your needs.

How does it work?

It is essentially a loan against the value of your home, and you have the choice whether or not to make any monthly payments.  The loan is then repaid by selling the property when the last surviving borrower goes into long-term care or passes away.  How much you can borrow will depend on the value of your home, your age and in some cases can be enhanced depending on your health.

As with any loan, there are advantages and disadvantages to consider and these will be discussed with you in detail.

Key Benefits

You can continue to own your home

You will remain as the legal homeowner until the last surviving borrower moves into long-term care, or passes away. 

Choose your monthly repayments

Some choose to pay monthly interest payments to ensure the mortgage never increases, others choose to maximise their spending money by adding any interest to the loan (compound interest).

Withdrawals to suit you

Based on your needs you can either choose to receive a one-off cash sum, or spread the money over time, complementing your retirement provision.

Choose to protect your inheritance

You can choose to safeguard a percentage of your home’s value.

Key Risks

Reduced inheritance

The loan has to be paid off eventually and therefore can be considered positively or negatively depending on your position as to inheritance tax.  The sale of your home will go towards paying off your loan so the potential inheritance will be reduced.  If you choose to add interest on, the loan will grow over time, reducing the inheritance by a higher amount each year.

Impact on welfare benefits

If you are eligible for welfare benefits, releasing equity can impact them – we can help work out if and how how you may be affected.

Lifetime commitment

You will be committing to this mortgage for life, if you want to end it early, repayment charges will apply during any early redemption period.

How you can use the money

How you use the money is completely up to you.  Here are some examples from past clients:

Home Reversion Plans

Home Reversion is still considered a type of Equity Release, however the terms under which the loan is made are very different.

A home reversion plan sees you selling a stake in your property in return for a cash lump sum.  By selling a share of your property, you become a co-owner but continue to enjoy the right to live in it for the rest of your life.  You surrender a percentage of your property in exchange for a sum based on its current value, but the ultimate cost is based on its price at the end of the deal.

You can usually sell between 25% and 100% of your property to the provider, but the amount you get in return will be significantly less than that share you surrender.

Home reversion plans are far less common than lifetime mortgages these days, but do contact us if you would like more information.

Retirement Interest Only

For borrowers aged 55 or over there’s an alternative option to a standard residential mortgage.  A Retirement Interest Only mortgage, also called a RIO mortgage, enables borrowers to pay a monthly interest payment with no set end date and continues until what’s called a ‘significant life event’ – that is, the last-named borrower dying or moving into long-term care.

Retirement Interest Only At a Glance:

1. Typically for borrowers aged 55+ where a mainstream mortgage may not be the best option due to age limits.
2. Affordability tests differ from those of a standard residential mortgage - with RIO, you only have to prove you can afford to repay the interest, not the capital you've borrowed.
3. Retirement Interest Only mortgages are for borrowers aged 55+ and can be used either to purchase a new property or remortgage an existing home.
4. A RIO mortgage has no set end date, and continues until the death of the last-named borrower, or when they move into long-term care. At this point, the loan is repaid by way of the property being sold, so a separate repayment plan is not required.
5. Monthly repayments must be made and are on an interest only basis. Because these regular repayments are made borrowers are not adding to the mortgage balance or attracting compound interest. 
6. As well as borrowing funds to continue an existing mortgage, a RIO mortgage could be used to free up cash in order to fund other lifestyle purchases, such as home improvements, or perhaps helping a family member with a deposit for their first home.

When it comes to any financial decision you’ll need to carefully consider the options that are right for you, depending on your individual circumstances and independent advice should be sought.  To discuss your options or for more information, please contact us.