A Comprehensive Guide to How Equity Release Works in the UK
Equity release is a service that’s available to people that are over 55 years, and it allows you as a homeowner to gain access to the capital that’s accumulated with the value of your home. You can get the money in instalments or draw it as a lump sum. There are many plans for you to gain access to this capital, which include you either drawing out a loan and using your property to provide security or you sell some shares if not all of it.
Commonly, you can choose between drawing a lifetime mortgage and going for a
home reversion plan.
You are likely to have one or many reasons motivating your decision to look at
the option of taking an equity release. Perhaps you need to make some
necessary renovations, assist your family with cash, or even increase your
income to make retirement more comfortable.
You must understand how equity release works to use it in your favour.
What is equity?
Equity refers to the market value held in your property minus any outstanding
mortgages or debts that you have secured against it. The equity in your home
increases with time, and as you make regular payments and your property’s
value increases.
The exact amount that you can release as equity varies with your age and
particular circumstances.
How Does It Work?
For you to gain consideration in an equity release plan, you must be 55 years and above, and you must own eligible property. You can
get the equity release a single lump sum or in smaller instalments. You are
free to spend as you desire.
First, you must review any outstanding mortgages and debts, and used the funds
to clear these off. Then you can keep the rest to yourself and spend it on
anything you want, for instance, dream holidays and fund your home
improvements projects.
Keep in mind that the sum you release is tax free and yours to spend as you
will.
Some equity release plans will give you the option to pay off the interest as
monthly payments; there are still plenty of options when this is
unnecessary.
A lifetime mortgage remains the most popular form of equity release. It allows you to repay
your outstanding loan and interest after the brokers have sold your house.
Which usually happens after you move into residential care or are
deceased.
How Long Does it Take to Get an Equity Release?
8-12 weeks is the average time it takes for your equity release to get
processed and completed. Getting yourself a renowned broker to manage your
equity release will help ensure that the process runs smoothly and you get
your money released as soon as possible.
Keep track of this timeframe.
What’s the Process of Equity Release?
The sole process that you undergo when releasing equity varies depending on you as a person and the
various brokers that you choose.
You initially meet with an equity release adviser or broker and discuss your
eligibility.
You set an appointment for a follow-up meeting in which you will discuss your
thoughts on the advice you got and submit an application that’s monitored by
your adviser, and if everything gets approved, you will receive your
money.
How Do Equity Release Schemes Work?
There are two significant categories of equity release plans which you have to
pick from when you want to access the equity valued in your home but not sell
it.
A Lifetime Mortgage
Consists of a tax-free loan coming in the form of a predetermined amount
that’s secured against your property. Most homeowners in the UK that are 55
and above have this option available. You can keep total ownership of your
home without them requiring you to make any monthly repayments.
The total amount of money and the interest accrued are instead due for
repayment either as you shift into residential care or you are deceased. Then
your property gets sold, and the debt gets repaid, and if there is any surplus
money, it goes into your estate.
A Home Reversion Plan
With a home reversion plan, they give you a tax-free lump sum or regular
income by you selling part of your home if not entirely. This equity release
service is available for homeowners that are 65 and above.
The price that you receive as payment from your broker will be below market
value because you reserve the right to live in your home. You may stay in the
house without paying rent up to the time you move permanently or are
deceased.
When the time comes,
The property gets sold, and they will put the value of your share into your
estate. In this manner, you
can track the exact percentage in value from your home that will go to your
beneficiaries as an inheritance when you are deceased.
How Is Equity Release Regulated?
All equity release schemes, brokers, and advisers are subject to the
regulations made by the Financial Conduct Authority. All reliable brokers are
members of the Equity Release Council, and they must adhere to its standards.
An essential principle being the ‘no negative equity guarantee’, where you will not have to pay back more than
interest
than that calculated with the value of your home at the initial sale.
Equity Release Affects on State Benefits
It is necessary to know that equity release might affect your entitlement and
eligibility to attain certain state benefits, even if you are currently
utilising them or hope to become eligible. After you take up an equity
release, you may find that the services reduce or perhaps that you lose
eligibility to access them.
Some benefits that may be in question include: Universal credit, Job-seeker’s
Allowances, Council tax-support, Employment and Support Allowance, Income
support
Reliable Advice
Note that equity release is
a substantial financial commitment that involves your home, and it’s not a
decision that should get made without thorough examination. Your home provides
you with unlimited shelter and security. It’s a precious asset that can form
most of your estate.
You need to make sure you get professional advice from renowned experts to help you take into consideration every aspect involved.