If you are over the age of 55, you may have been approached about the possibility of releasing equity (money) which is tied up in your home. While the prospect might sound appealing, it’s always good to fully understand any financial decision you’re making – especially if it’s related to an asset as important as your own property. 

That’s why we’ve created an equity release guide to help you better understand your decision and manage your money safely. Read on if you’re interested in releasing equity which is tied up in your home.

What is equity release?

 

Equity release is the option to convert the financial value of your home into a payment which you can immediately access. This can be done whether you own your home outright, or are still paying back your mortgage. 

There are a handful of options for how this money will be paid out to you:

• In one big lump sum 
• As several smaller payments over time 
• As a combination of the two options above

While this sounds like a great way to quickly find funds, it must also be stated that these kinds of payouts come with high-interest rates. These will typically sit around 2% to 4%, but will change depending on your exact circumstances. You can use the tool found here to work out what your specific rates would be. 

There are two ways you can choose to release equity from your home: an equity release mortgage, or an equity release home reversion.

What is an equity release lifetime mortgage?

 

This is the most common way people take out equity release. It’s called a lifetime mortgage because you generally don’t have to make repayments until you pass away – although some lenders will give you the option to make repayments. 

Any interest acquired in this time is added onto the loan itself, which needs to be paid back in full (either by your own savings or your next of kin) when you die. Here are some other important things to know about a lifetime mortgage:

• While you can take out a mortgage from age 55, this means you could be accumulating interest for a potential 25-40 years. This could mean a huge sum of money is owed when you die.
• You probably won’t be able to borrow more than 60% of the total value of your property (according to the housing market at the time of application). 
• Interest rates should be fixed for this kind of equity release. That means they won’t fluctuate over time unexpectedly. If they are not fixed, they will have a cap which cannot be exceeded. 
• If your equity release provider allows it, you should be able to move to another property after taking out a lifetime mortgage.  You will need to check if the property purchase is acceptable with them first.
• You will be provided with a “no negative equity guarantee”. This means that if after your property is sold (and solicitor and agent fees are paid) your estate does not cover the cost of interest repayments, you are not liable to pay any more money.

What is an equity release home reversion?

This isn’t as popular an option as a lifetime mortgage, but can still be handy if you want to quickly release money. This will see you sell some (or even all) of your home to a home reversion provider. The value you get for your home will only be around 20-60% of the current market value. 

Things to consider include: 

• This type of equity release does not always guarantee you a choice when it comes to how money is given to you. You’ll need to understand ahead of time which option is available when you apply. 
• You may not be able to take out this option if you’re aged below 65. Again, this will vary depending on the provider. Some will allow it from age 60 and up, while others might even make it accessible to people who are 55. 
• The older you are, the higher the percentage of the current market value you receive will be. For example, someone aged 65 might be offered 50% of market value, while someone aged 60 might only get 40%.
• Just as with a lifetime mortgage, you’ll be able to live in the house for the remainder of your life. You’ll also be able to move and carry the equity release plan over, assuming you’ve cleared it with your provider first.

Who is equity release for?

Equity release is for property owners who are at least 55 years old. In addition to age, whether or not equity release is the right choice for you will be affected by your income, how much money you want to release, and what you have planned for the future.

How does equity release work? 

If you’re interested in pursuing the option of an equity release, there are three key steps you need to follow in order to carry out the process in full. 

Speak to a professional 

Before starting the process of releasing equity from your home, it’s advised you speak to a financial advisor first. They will be able to guide you through every aspect in detail, and work out if you are a good candidate for equity release or not. 

If you are, you’ll be presented with recommendations as to how you might be able to proceed. It’s important you fully understand the repercussions of what taking out equity means, so be sure to work out how much interest you might have to pay over time. 

Have your property valued 

Assuming you are happy with the recommendation you’ve been given by the advisor, you will need to submit your application to the lender of your choice. It’s highly advised you turn to a solicitor at this point (preferably one who specialises in equity release) to give you independent legal advice. 

Once the lender has received your application, they’ll arrange for your home to be valued. When they have a figure they’re happy with, they’ll send an offer for your solicitor and yourself to look over. Go over this in detail and make sure you’re happy with everything included in it. 

Receiving payments from the lender

Once everything has been agreed on, the lender will release the full sum to your solicitor. They will pay any debt you have against your home with the funds, then release the rest to you. This money is now yours to use however you so wish. 

The amount given to you in one hit will depend on how you agreed to be paid by the lender – as a lump sum, a series of smaller payments, or a combination of both. 

How long does equity release take?

Equity release can take anything between three and eight weeks to complete if there are no complications. More complex cases can take longer.

Is equity release a good idea? – The pros and cons of equity release 

While releasing equity provides you with money in-hand to be spent however you like, it would be wrong to say there aren’t major factors which need to be taken into account first. After all, nothing is ever as easy as being given money for free. 

Let’s take a closer look at both the pros and cons of equity release. 

Pros:

• The money you receive from equity release will be tax-free, meaning every single penny is yours to spend as you see fit. 
• As equity release is transferable, you should still be able to move to a new property (assuming you have the approval of your lender).
• If your property continues to rise in value, this will be added on to the sale price at the end of the agreement. 
• With a lifetime mortgage option, you would continue to own your home. 

Cons: 

• Your overall estate value will decrease as a result of equity release, with the sale of your home going to pay off any interest you’ve accrued. That means your beneficiaries’ inheritance will be significantly less.
• If you take out a lifetime mortgage, you will not be able to take out another loan secured against your home. 
• If you choose a home inversion plan, you will lose ownership of a part of (or all) of your property.
• Receiving a lump sum may restrict your entitlement to means-tested benefits, such as pension credit. 

How much does equity release cost? 

While the process itself is intended to provide you with disposable income in the long term, you will need to front some costs first to be able to access that money. Let’s break down the areas where you’re likely to face charges. 

Surveyor’s valuation 

As we discussed, your house will need to be valued in order for a lender to be able to make you an offer. This is what forms the basis of how much you’re going to be given (along with factors like your age and health), so it cannot be avoided. 

Solicitor’s fees

Having a solicitor to talk you through the process and provide valuable insight is something of a must when releasing equity. And while prices offer incredible value for the quality of service provided, it is still another cost which needs to be factored into your budget.

Lender’s application 

The final cost to think about is the charge a lender might force you to pay in order to process your application. This will vary greatly depending on who you’re dealing with. Prices can range from free of charge, up to hundreds of pounds. 

In total, Key Advice estimates that the average cost of equity release fees sit at around £1,850. This is a healthy number, so be sure to factor it into your figures when you think about applying. 

Why choose our equity release solicitors?

At Manak Solicitors, we understand that releasing equity is a significant decision. Our conveyancing solicitors will ensure you fully comprehend the equity release process, communicate with you using plain English, and find a solution that suits your situation.

We pride ourselves on being:

• Efficient: We use the latest technology to assist our qualified, experienced solicitors in moving your file along as fast as we can.
• Accurate: We pride ourselves on absolute attention to detail. We appreciate the significance of moving home and work to ensure everything is executed to the highest standard.
• Transparent: We encourage you to check our fantastic, transparent Google and Facebook reviews.
• Approachable: We guarantee every single file we work on is overseen by a qualified solicitor. This is not something our competitors will offer you.

With locations in Sevenoaks, Orpington, Gravesend and London, we are positioned to serve Kent, London, and the wider South East. Get in touch with your preferred office today for further details, including information on our competitive pricing.

FAQs

Are there any alternatives to equity release?

Yes, equity release is not the only option. It is worth considering the following before you make a decision. 

• Selling other assets you no longer want or use.
• Remortgaging your home.
• Amending or extending your current mortgage agreement.
• Switching to a Retirement Interest Only mortgage.
• Downsizing to a new home.
• Accessing a grant to fund adaptations to your home (such as stair rails, ramps, wider doors, or a wet room). Speak to your local council, or contact an organisation like Independence at Home or Home Improvement Agencies.
• Checking what state benefits are available.
• Renting out a room in your home.
• Creating a new, smaller budget for everyday living.
• Changing your job or coming out of retirement.

How much equity can I release?

The amount of equity you can release depends on the way you choose to release it.

If you take out a lifetime mortgage, you probably won’t be able to borrow more than 60% of the total value of your property.

If you choose home reversion, you’ll receive between 20-60% of the total value of your property. The older you are, the higher the percentage is likely to be.

Can I sell my house if I have equity release?

Yes. If you bought your equity release plan from a member of the Equity Release Council (ERC), your lender will approve your move to a suitable property, and transfer your policy to it. How this works depends on the type of equity release you have:

• Lifetime mortgage: The debt is transferred from your previous property to the new one.
• Home reversion: The percentage of the lender’s stake in your home may increase if the new one costs less than the previous one.

Properties which are not normally considered suitable include specialist retirement homes, studios, basement flats, mobile homes, house boats, guest houses, B&Bs, and farms.

Is equity release safe?

Equity release products are safe. They are regulated by the Financial Conduct Authority (FCA) and Equity Release Council (ERC). However, equity release is a big decision and should not be made lightly. As with any other financial commitment, there are risks you need to understand before you proceed.

 

Hopefully, you’ll now have a clearer picture of what equity release is and how it works. Remember not to rush into your decision, as it can have a big impact on your finances heading forwards. 

If you do decide to apply, make sure to turn to Manak Solicitors for any help with your application. We are experts in the field of property law, and will be able to guide you safely along every step of the process. Get in touch today. 

There are a lot of factors to consider with equity release, which is why it’s so important to use a tried and tested solicitor to talk you through your exact case. Ultimately, together you need to decide whether the value of equity release outweighs the potential downsides.