If you are a mortgage-free homeowner, over the age of 55, and you would like to gain access to some of the wealth you have accumulated over the years, then you may well be considering an equity release scheme. With many advantages, and some significant pitfalls as well, equity release is a step that needs careful consideration and should only be taken by the well-informed. Our guide to equity release outlines all of the important details and provides access to useful sources of impartial advice.
What is Equity Release?
An equity release plan allows a homeowner over the age of 55 to tap into the value of the property to receive either a lump sum or small monthly payments. The way this plan is then repaid depends on the type of equity release plan. In the UK, there are two main types of plan: Lifetime Mortgages and Home Reversion. For more details on both of these plans, see Equity Release Schemes Explained. Both types of scheme are regulated by the Financial Services Authority, and central to both is the promise that you will be able to continue living in your property, and you won’t be required to make monthly payments.
How much can you borrow with an Equity Release plan?
Usually, an equity release plan will enable you to borrow between 25% and 50% of the value of your home – depending on your age and circumstances
. Anything over 50% is considered too risky by most lenders, whereas anything less than 25% is considered unlikely to prove profitable enough from a lender’s point of view. If you think you need access to an amount less than 25% of the value of your property, then it is likely to be obtainable via another means, such as a loan.
Regulations for Equity Release schemes
Equity Release schemes are more expensive in the long run than standard mortgages and rates of interest are considerably higher than the Bank of England’s base rate
. In the past equity release plans have been offered by disreputable lenders, but since 1991 the industry has been carefully regulated by first the SHIP (Safe Home Income Plans) Standards, and now its successor the Equity Release Council . This sets the code of conduct for all equity release lenders and ensures that homeowners are guaranteed financial products that conform to the best practice in industry standards. If you are thinking about entering into an equity release plan, make sure that the lender is a member of the Equity Release Council.
Accessing impartial advice
Equity release plans represent a lifetime commitment, and they are only available to the over 55s, so being well-informed and confident that the decision you are making is the right one is very important. The Society of Later Life Advisors (SOLLA) exists to make sure that elderly people and their families are able to access the best and most reputable forms of financial advice, without fear of being misinformed. As well as equity release, they are able to link people to advisors on a number of financial issues including pensions and annuities, and investments and savings.