You’re a 50-plus homeowner keen to free up some cash – whether it is to pay off your mortgage, raise a deposit on your child’s first home or pay for your elderly parents’ nursing care. The answer could lie in the bricks and mortar of your own home.
Recent figures show that more people are using equity release schemes to access extra cash – equity release lending grew by 35% in the third quarter compared with the same period last year. With underperforming pensions, retired homeowners are now reported to be withdrawing over £6.8m of property wealth a day.
High50 asked equity release legal expert Jasper Dawson, partner at leading law firm Kirwans and Nigel Waterson, Chairman of the Equity Release Council, to list the 5 top things you need to know about raising cash from your home.
Home Reversion Scheme
This allows you to sell all or part of your property for less than market value in return for a tax-free cash lump sum, a regular income, or both while staying on in your home as a tenant but paying no rent. You can also ring-fence part of your property to leave in a will and you know exactly what portion of the property you’ve sold. You will then be entitled to live in your home for the rest of your life. The minimum age a plan can be taken out at is 60, however lenders may insist you are over 65.
Lifetime Mortgage
This allows you to take out a mortgage secured against your property while still retaining ownership, and you can choose to receive the funds as a cash lump sum, an account to draw on as needed, or a combination of both. This can only be done if the property is your main residence and if you and your partner are over 55. This flexible option can also allow you either to make monthly interest repayments, or to let the interest roll up. If rolled up, the interest is accumulated over time and is repaid along with the value of the loan sum when the property is sold. It could be worth considering repaying a small amount each month as in the longer term this could leave a larger inheritance for your family.
Moving House
You can still move house after you have released equity from your home as long as your lender allows you to transfer the mortgage and accepts the type of house you’re planning to move to. Properties with a limited buying market, such as homes built in retirement complexes, are not usually accepted because they would be more difficult for the lender to sell. Though dependent on individual circumstances, it is possible to move home under both types of equity release plan.
Interest Only Mortgages
Lots of people over 50 may be faced with having to repay their entire mortgage in one hit if they took out interest only mortgages, and equity release can be one way to help repay a large sum. Jasper Dawson explains: “Provided the existing mortgage doesn’t exceed around 30% of the value of the property, you can release equity from the capital that isn’t mortgaged to pay this off rather than having to sell up. Other options aside from equity release include transferring to another interest-only mortgage or downsizing and paying the new loan off with capital raised from the sale.” It also depends on individual circumstances and you should always seek financial advice on what options could work best.
Funding Home Care
Equity release is worth considering as an option for those who may not have the mobility that they once did, but are still able to live alone with help. You can release some funds to pay for care rather than selling the home entirely, allowing you potentially to retain an inheritance for your children.
So long as use the equity released to clear any existing mortgage or debt on your home first, any funds left over can then be spent on whatever you want.
You should also always use a member of the Equity Release Council to benefit from the Standards and protections it offers to consumers, including the no negative equity guarantee, the right to remain in your property for life, and independent face-to-face legal advice.
www.kirwanssolicitors.co.uk