If you own your property and would like to free up some of the capital that it represents, one option available to you is to either take out a lifetime mortgage or enter a home reversion scheme. These are the two types of equity release available in the UK, and they both provide distinct advantages to anyone who wants to tap into the wealth that they have accumulated, as represented by the value of their property, but who doesn’t want to have to move house.
However, it should be noted that although both of these schemes offer a quick way of accessing ready cash, neither of them is cheap and in the long term that can both prove to be very expensive. Equity release schemes don’t suit everyone, but those who fulfill the criteria in terms of their personal situation and the potential value of their property can enjoy many benefits by using their home to release equity.
Who can benefit from Equity Release?
An equity release scheme is one that takes advantage of the fact that your home has capital value and therefore uses the value of your home to allow you to borrow money. This money is then repaid after you have died or moved into a retirement home, which is why equity release schemes are of most value to people who are retired and who don’t plan to leave their property to their heirs after they have passed away.
Mortgage-free homeowners over the age 55 who need to meet a pension shortfall, or who need to access to money to meet a sudden large expense, or who want to enjoy their retirement to the full, are the type of people who most commonly tend to explore the possibility of entering an equity release scheme.
Anyone under the age of 55 will not be eligible for equity release, although there are other options available. See Equity Release for the Under 50s
For many people over the age of 55, the biggest asset they have is their house. Anyone who wants to make the most that asset, but doesn’t want to downsize and move into a smaller or cheaper property, is likely to be tempted by an equity release scheme. But they are lifetime commitments, and once you have entered into a scheme, you can find yourself very restricted if you change your mind, or if you suddenly need to move house. See Can I Release From My House? for more details.
The advantages and disadvantages of Equity Release
Depending on the deal you can get from a lender, an equity release scheme can provide you with either a lump sum or a regular source income (annuity) that is index-linked and tax free. Another advantage is that it can also help to reduce the amount of inheritance tax that is owed by your estate after your death. It’s worth remembering that it may also reduce the amount of money that you may be able to bequeath to charity, and if the value of the property grows at a slower rate than the interest rate on the mortgage, it may also mean that your family members will inherent less upon your death.