For homeowners aged 55 or over, equity release can be a means of providing you with a cash lump sum, income, or combination of both, using the money you have tied up in your property.
There are two main types of equity release product: lifetime mortgages, which are mortgages that are secured against your home; and home reversion plans, where you sell all or part of your property to a reversion company in exchange for money. The majority of equity release products sold in the UK today are lifetime mortgages.
We offer lump sum and drawdown lifetime mortgages. And whilst these types of lifetime mortgage can be useful, they definitely aren't right for everyone. That's why we've compiled the following information to help you find out more.
What is equity release?
Equity release lets you access some of the money that's tied up in your home. It can give you a tax-free lump sum that you can spend on numerous different things such as easing money worries, a holiday of a lifetime, a kitchen, funding care at home, improvements or alterations to your home – almost anything at all.
Is equity release right for you?
Equity release isn't right for everyone. It depends on your circumstances, and there may be other products or courses of action that make more sense. Here are some things to think about:
- Could you downsize?
You could sell your property and downsize to a smaller, cheaper one. It may be a difficult decision emotionally, but it could be very practical.
- Could you get a ‘standard’ mortgage?
Your age and income would probably be the deciding factors, and of course it’s important to think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
- Could you get a local authority grant?
If you’re thinking about equity release for home repairs or heating improvements, then it’s worth checking to see if your local authority offers grants or loans.
- Could you simply borrow money from elsewhere?
It may not be easy, but could you ask a relative or close friend to lend you the money?
- Could you rent a room out?
If a small, regular income would do the trick, then you could earn up to £7,500 per annum free of tax through the Rent a Room Scheme.
And of course, it’s important to make sure you’re getting all the income and benefits you're entitled to as well. To find out, why not take a look at the benefits and allowances section.
Am I eligible for equity release?
Different equity release providers have different criteria they apply when assessing if a customer can take out equity release – however, in the main, you may be eligible for equity release if:
- You are a homeowner in England, Scotland, Wales or Northern Ireland
- Your property is worth £70,000 or more
- You are aged 55 and over
What types of equity release product are there?
There are two main types of equity release available - lifetime mortgages and home reversion plans.
What are lifetime mortgages?
A lifetime mortgage is a loan secured against your home, which allows you to release a cash-lump sum from the equity (or value) held in your property. With a lifetime mortgage, you retain ownership of your home and can still benefit from any price increases.
There are a number of different lifetime mortgages available on the market which we show you in detail in this section of the website. These include:
- lump-sum lifetime mortgages
- interest-serviced lifetime mortgages
- drawdown lifetime mortgages.
What are Home Reversion Plans?
Home Reversion Plans are an option for those aged 65 or over.
Home reversion involves selling part or all of your home to a home reversion plan provider in return for a cash lump sum. This is usually higher than the sum you can raise from a lifetime mortgage. While all or part of your home will belong to someone else, you can remain living there for the rest of your life rent-free.
Home reversion plans are not loans and so there's no interest to pay. However, if your property increases in value, you will only benefit from the increase in value of the proportion you still own.
Equity release may not be right for everyone. It may affect your entitlement to state benefits and it will reduce the value of your estate.
What are the differences between lifetime mortgages and home reversion plans?
The fundamental difference between the two is when you take out a lifetime mortgage you still own your own home. But with home reversion plans, you actually sell a share of your home in exchange for a lump sum of money or a lifetime of regular income.
The other main difference is that with a lifetime mortgage, the fixed interest rate agreed at the time you take out the product builds up as compound interest over the years. With home reversion plans, there is no interest building up as it is not a loan. The price that you’re offered for the percentage of the property you’re selling is in line with how long the reversion company expects the plan to run.
Key differences between lifetime mortgages and home reversion plans
|Lifetime mortgage||Home reversion plans|
|It’s a mortgage, but you don’t usually have to make any repayments during the lifetime of the mortgage unless you choose to do so.||The provider buys a share (or all) of your property in exchange for a lump sum or regular income. The amount you receive will be less than the current market value of your property as you retain the right to live there, rent free, until you die or move in to long term care.|
|The interest on the mortgage is usually 'rolled-up' and added to the mortgage although with some products you can choose to pay the interest if you wish.||When the property is sold, the provider receives their share of the sale proceeds, based on the share that you have sold to them.|
|The mortgage is usually paid back when you die or move into long term care.||If you choose to buy back the share of the property you sold to the provider, you'd have to do so at the full market value.|
|Early repayment charges could apply if you choose to pay back the mortgage early.|
Are there any other charges?
When you take out either a lifetime mortgage or home reversion plan there may be other costs associated, including:
- solicitors' fees
- survey fees
- application fees.
It is also worth noting that lifetime mortgages also are designed to do just that – last a lifetime and many carry large early repayment charges should you decide to repay the mortgage early. It's worth understanding what this charge could be, before you decide to take out a lifetime mortgage.
All equity release products reduce the amount you leave behind in your estate when you die, they could affect your entitlement to state benefits and they could also affect your tax position.
We recommend that you talk to a professional adviser before making any decisions about buying equity release products.
If you're looking for information on how your interests are protected, take a look at the protection and regulations currently in place or take a look at the Equity Release Council's website.
HUB Financial Solutions, part of the Just Group, offers an equity release advice service that could help you decide if equity release is right for you.
What is the process for taking out an equity release product?
Once you have decided that you want to find out more about an equity release product, you should set up a meeting with a financial adviser. They will review your personal circumstances to see if an equity release product is suitable for you.
If equity release is appropriate for your needs, your financial adviser will provide you with a recommendation of the type of equity release product that best suits your requirements – either a lifetime mortgage or a home reversion plan.
They will also provide you with what's called a Personal Key Facts Illustration (as indicated by the 'Key Facts Logo'). This summarises all the important details of the product that you need to know about and understand, and it gives you a clear understanding of the costs involved.
The process for taking out both products is similar, but not quite the same.
What is the process for taking out a lifetime mortgage?
If you decide to proceed with your financial adviser's recommendation they will complete an application form with you. They will then send the form together with any fees to the chosen provider. It is recommended that before choosing a product you consider if it meets The Equity Release Council standards.
The provider will instruct a surveyor who is qualified with the Royal Institute of Chartered Surveyors (RICS) to come out and visit your home and produce a valuation. The valuation report is for mortgage purposes only.
Once the survey is complete and the amount you can borrow has been confirmed, you and your solicitor will receive an offer letter. Your solicitor will talk you through the offer. When you are happy with it, you and your solicitor sign the acceptance form. This shows that you understand the features and risks of the mortgage. Your solicitor will also need to sign the Equity Release Council Solicitors Certificate, to confirm they have discussed key points with you and you understand the nature of the contract.
It is wise to make sure the solicitor you choose is experienced in equity release as this will keep the costs to a minimum and ensure a smooth process. Many product providers have approved panels of solicitors that you can work from, or you can go to thepfs.org or unbiased.co.uk to find one.
Your provider will then carry out some legal checks in relation to the title of your property. Once this is completed the cash is released to your solicitor who will arrange for the funds to be transferred to you.
What is the process for taking out a home reversion plan?
Again, your financial adviser will complete the application form with you and send the form with any relevant fees to the reversion provider.
As you will be selling a portion of your home, the provider will instruct a surveyor who is qualified with the Royal Institute of Chartered Surveyors (RICS) to come out and visit your home and produce a valuation. A copy of the report may be sent to you and/or your solicitor, and you may even wish to get your own independent valuation conducted. This won't necessarily affect the amount the reversion provider will offer you, but you will have your own independent view of the value of your property.
Once the survey(s) are complete, the reversion provider will confirm how much of the property they wish to purchase in exchange for your desired lump sum. This will be in the form of an offer letter. Your solicitor will talk you through the offer, and if you are happy with what they are suggesting then your solicitor will sign the acceptance form. They will also need to supply copies of the deeds to your home to the reversion company, as you will now no longer be the sole owner.
Once the necessary legal paperwork has been completed the cash is released to your solicitor who will arrange for the funds to be transferred to you.
The Just For You Lifetime Mortgage
A lifetime mortgage is a loan secured against your home, designed to last for the rest of your life. We’ve designed our Just For You Lifetime Mortgage to allow an initial lump sum release with the added flexibility of a cash facility, from which you can release additional amounts in the future as and when needed. Our lifetime mortgage also provides an option to pay some or all of the monthly interest amount which could help reduce the overall cost of the loan amount.
To be eligible for our Just For You Lifetime Mortgage you must be aged between 55 to 85, or the youngest applicant must be aged 55 to 85 if you are borrowing jointly. You must also own your own home. The property – which must be your main residence – has to be in England, Wales, Scotland or Northern Ireland and worth at least £70,000. The maximum borrowing amount will be determined by a number of factors including your age and the value of the property.
The maximum amount available will be subject to an overriding maximum of £1,000,000 for properties in England, Scotland and Wales and £250,000 for Northern Ireland. The minimum amount you can borrow is £10,000, or £20,000 if you are making monthly payments.
Monthly payment option
The option to pay some or all of the monthly interest amount by direct debit must be chosen before the lifetime mortgage completes. The minimum payment is £25, up to 100% of the monthly interest amount.
There will be a reduction to the roll-up interest rate for customers who chose to pay more than 25.01% of the monthly interest.
If a temporary break is needed from the monthly payments, we allow a payment holiday request of up to three months in any 12 month period following completion of the loan, subject to receiving one month’s notice. Any interest not paid during this period will be added to the overall borrowing and roll up on a compound basis.
If you want to stop making monthly payments altogether, this can be done at any time. The lifetime mortgage will switch to a full ‘roll up of interest’ basis and the interest rate applicable may increase. If the decision is made to stop making monthly payments, they cannot be restarted.
In regards to missed payments, after six months payments have been missed the lifetime mortgage will convert to a full ‘roll up of interest’ basis and the interest rate applicable may increase.
How is interest calculated?
The interest rate charged is set according to our interest rates at the time the initial advance is taken. The rate is fixed and so guaranteed not to change over the lifetime of the mortgage. If you are eligible for additional advances in the future, the interest rate for those advances will be set at that time and may be higher or lower than the rate on the initial advance. The interest rate may change if you stop making monthly payments.
The interest rate charged will build up on a compound basis for any element of the loan that is not being interest serviced. This means interest will be charged on the amount of your lifetime mortgage as well as all the interest that has built up in previous months. The total mortgage, including this interest, is repaid when you (or both of you if borrowing jointly) die or move into permanent long-term care. This is normally done by selling the property.
When do I have to repay the lifetime mortgage?
The total amount owed and any accrued interest must be repaid within 12 months of you (or both of you if borrowing jointly) dying or moving into permanent long-term care. This means you do not have to make any monthly repayment, unless you choose the option to service some or all of the monthly interest amount.
Other things to be aware of
Please bear in mind that taking a lifetime mortgage could affect:
- the amount you leave behind in your estate i.e. its value will be reduced,
- your entitlement to state benefits, and
- your tax position.
Valuation fees, legal fees, advice fees, set-up costs and other fees will apply. Please read our Lifetime Mortgage Guide.
How can I take a Just For You Lifetime Mortgage out?
We don’t sell our products directly, but you can purchase them through a financial adviser. You can find a professional financial adviser at unbiased.co.uk.
You can, however, still gather a bit more information whilst you’re here.
If you’re not certain that you need a financial adviser just yet, that’s fine too: you can still use our free and easy-to-use Indicative Lifetime Mortgage Calculator. We stress it should only ever be used as a guide, but it is certainly a useful tool to help give you a feel for the kind of money a lifetime mortgage could enable you to release from your property.
Who should I talk to about equity release?
Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.
Deciding to release equity is an important decision, and it’s essential you find the product that’s right for you. We would always recommend you seek professional financial advice.
Alternatively, HUB Financial Solutions—part of the Just Group—offers an equity release advice service that could help you decide if equity release is right for you.