4. The most common form of equity release is a lifetime mortgage that isn’t paid off until you die or go into long-term care. The loss of benefits may make equity release poor value for you. The minimum age for a home reversion scheme may be 60 or 65. Most providers now offer a ‘no-negative-equity guarantee’, which means the debt will never be more than the sale value of the property. These changes mean that Equity Release could now be a realistic element of your Retirement Planning. Look at alternative sources of income, such as downsizing or renting out a room. There are numerous up-front costs involved in setting up an equity release scheme, so make sure you’re clear on all of these before you proceed. It can be particularly useful for covering large expenses later in life, such as long-term care. We are a firm of Independent Financial Advisers (IFA’s). One way to reduce this risk is to pay off the interest as you go. At heart, equity release is actually a clever idea. We urge you to turn off your ad blocker for The Telegraph website so that you can continue to access our quality content in the future. You also need to make sure that your home reversion contract allows you to move home, if necessary, and that there are no elements of the contract that could cause you unwanted problems or expenses further down the line. It might be that the above equity-release problems don’t apply to your situation and that equity release is a viable alternative for you. Your financial adviser or mortgage adviser can help you decide whether an equity release scheme is appropriate, or whether you should consider other options such as downsizing instead. It is very different to modern equity release mortgages where you retain ownership of the … Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. The language used by equity release firms in television adverts is inviting: "Access the value of your home, tax-free", "How much tax-free cash could you release? To understand how these common equity-release pitfalls might influence your situation, you should discuss any possible deals with a financial adviser. Read on to find out more about these different types of equity release. 3. Find out more, The Telegraph values your comments but kindly requests all posts are on topic, constructive and respectful. Be sure also to check out sovereignboss and see how much equity you can release with the equity release calculator. You will receive far less money than you would from selling the property on the open market – although of course in that situation you would still have to find somewhere else to live. This is achieved either using a type of mortgage, or by selling that portion of your home on the condition that you can continue to live there as long as you wish. Yet while equity release rates don't sound much higher than ordinary mortgages, they often cost much more. Almost 39,000 homeowners aged 55 and over used equity release to unlock housing wealth in the first half of 2018. In short, it’s the sum you’d walk away with if you sold the home for cash. It is important to check the terms and conditions before taking out the plan. 1. The pros and cons. Latest news December 2020: Equity release interest rates are at their lowest ever & will be fixed for the rest of your life - LATEST OFFER 2.22% AER through Age Partnership when you use our calculator Best quote guaranteed or receive £500. These challenges could be causing some advisers to shy away from equity release. Just 24 product options existed in 2007. Borrow in stages If you do take one out, you should consider checking to see if you can get a better deal once the early-repayment charge period has ended. The main disadvantage of equity release is that it does not pay you the full market value for your home. Some borrowers who took out plans in the 2000s, with rates often upwards of 7pc, are now paying five-figure sums in interest charges each year. Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Some scandals in the 1980s gave the whole equity release market a bad name, but with a meticulous plan provider, there is nothing to worry about. If your home has increased in value over the years, equity release enables you to get at some of that money to supplement your retirement income – instead of leaving it all to your beneficiaries, or to cover your long-term care costs. Equity release is an advised financial product, which simply means that you cannot take out a plan without having taken appropriate financial advice from a suitably qualified professional. However, releasing equity may not be a good idea if you don’t like the idea of your family’s inheritance being affected. The home will also have to be vacated very quickly after your death, often within a month. Whether or not it’s the right tactic for you will depend on your plans for your cash and your financial situation. Millions of pensioners are struggling to pay everyday bills despite living in properties worth hundreds of thousands of pounds. Your adviser can also find the best one for you from the whole of the market and set it up for you. Finding yourself house rich and cash poor? The choices open to homeowners are certainly growing. Costs can include: These costs can vary, but you should allow for around £3,000. Equity release can provide you with a large sum of money to spend while enabling you to continue living in your home. A few enterprising individuals have tried their own version of the French viager system, by selling their home privately at a discount in exchange for lifelong tenancy rights. Here's our guide on the pros and cons, risks and pitfalls, to help you answer the vital questions, is equity release a good idea or even safe? The equity release industry is represented by a trade body called the Equity Release Council (ERC). If you want to move home, you can keep your scheme running as normal. Your equity is the total market value of your home, minus any mortgage you haven’t yet paid off. Equity release won’t necessarily be a good idea for everyone, but for some people, it can be an effective way to unlock cash they have tied up in their property. And in the first six months of this year that rose to 31%. If you do want to leave your property, then there may be alternative ways to raise the money you require. The effect of compounding interest means that the outstanding balance owed can rise quite quickly. Last year, 23% of retired homeowners who took out an equity release plan said lending to their loved ones was their motivation. Find the right adviser fast with our matching technology. Am I protected when using equity release? Make sure the provider you use belongs to the Equity Release Council, so you are protected from pitfalls like negative equity. With a typical 4.5pc rate the debt will have doubled within 16 years. This can be a large additional stress on your family, having to sort through your things and clear out the property in addition to arranging your funeral. F inding yourself house rich and cash poor? It’s done via a loan, which is usually repaid from your home’s value once you die. Try our calculator to find out", "See how much cash you could release from your home". Find the right adviser fast with our matching technology. You also have the right to ask a solicitor to check all the documents before signing up to a scheme. Again, your adviser can help you work this out. The main disadvantage of equity release is that it does not pay you the full market value for your home. The money you receive from a lifetime mortgage loan is tax-free. Unlocking the wealth in bricks and mortar can make sense, but it is not a decision to be taken lightly. Many of the mortgage advisers and financial advisers listed with Unbiased offer high quality independent equity release advice. This is particularly useful for those with interest-only mortgages and no repayment vehicle. Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. EQUITY release schemes were today labelled 'the lifestyle dream that can turn into a nightmare'. No other loans can be taken using the property as security. With a lifetime mortgage, you run the risk of owing far more than you borrowed when the time comes for the home to be sold – up to the total value of the property (but not more than that). 6. Use an accredited provider As with all financial situations, everything is personal making equity release a potentially good idea for some people. Advisers must have taken special qualifications to become equity release advisers. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO. The value of your home is not included in any means test as long as you are living there – but cash in the bank certainly will be. As most schemes offer a roll-up of interest it means that no payments are made by the borrower. If you are receiving any benefits in addition to the state pension, check how these might be affected if you were to use equity release. Equity release is a way of freeing up the money in your home without having to move. Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. Thus begging the question, is equity release good or bad? Yet another is that having lots of money in your account may reduce the benefits you are entitled to, including help with the cost of care. For more information or speak to an Equity Release mortgage adviser call us on 01628 507477 . Unlike residential mortgages, where a borrower pays off the interest charges each month, the interest on equity release loans is usually added to the overall debt. As an extra safeguard, have your solicitor check over the agreement you have with the equity release company before signing it. Any equity release company that has the Equity Release Council logo on their material must ensure you can still live in your home until you die or move into permanent care. But just how safe is hollowing out the value of your home? In recent years, there have been a number of changes to many equity release products to provide greater Is equity release a good idea? If you don’t pay off the interest at regular intervals, the entire sum will compound – so at around 5 per cent interest, the amount you owe would double every 15 years. 5. The money can be paid to you either as a lump sum or as a regular income, whichever you prefer. As you enter later life, you may find you need additional sources of income. The Top 3 … The "facility" option allows borrowers to have access to a pot of money for the future and are not charged interest until it is drawn upon. What are the advantages of equity release? Unlocking equity from your home can be a great way to get some extra cash in retirement. For example, borrow £20,000 aged 65 at 6.5% on a £120,000 home and live 25 … Interest rates can be as low as 3.4pc and are usually fixed for the life of the loan. Martin Lewis explains what equity release is and how it might help your finances. This is because a lifetime mortgage (like a regular mortgage) charges compound interest. Because who’d willingly want to make a non-informed financial decision based on their biggest asset that takes decades to pay off? Whether equity release is right for you or not will depend on your circumstances. How we can help you with your Equity Release. This means that the advice we offer is unbiased. If you’ve simply changed your mind, it’s important to speak to a financial adviser as soon as possible to work out the most cost-effective way of organising your finances. Consider alternatives Retirees gift £500m to help relatives through Covid cash crisis, Retirement plans in jeopardy: equity release could be blocked if house prices crash, Cashing in on house price boom? Whether a lifetime mortgage or a home reversion scheme is best for you will depend on a wide range of circumstances, such as how much you hope to leave your family as an inheritance. Releasing cash against the value of your home can be a way of gifting wealth to family members, free of inheritance tax. We’re not saying equity release is a bad idea, it’s a viable option if you need the funds, but just like any debt it needs to be manageable, and you need to … Extracting cash could mean that any means-tested benefits – spectacles, dentistry, council tax and pension credit could be impacted. This “rolling up” means that the interest compounds, growing rapidly. However, this could still mean that all the property’s value is used up in paying off the mortgage. And where can I find unbiased equity release advice that I can trust? Just 13% of those who supported a client with a lifetime mortgage purchase in the last year say they presented the idea to their clients, whereas nearly two thirds (64%) said their clients came to them with the idea. You’ll have to tell your equity release company so that they can decide if your new home is similar in value. Another option is to take out a series of smaller lifetime mortgages over the years. This may sometimes offer better value, but isn’t easy and requires in-depth legal and financial advice. Another good reason to do this is that your money is better off invested in your home (where it is likely to grow) than in a cash bank account. Their advice is also regulated by the FCA, which gives you an additional layer of protection. The amount of equity you can release depends on your property value and any outstanding mortgage or debt. Equity release is a way of spending your home’s value whilst you’re still living there. Check your benefits situation Additionally, mortgage rates are at a historic low which means that Equity Release rates will also be low. You need to be a subscriber to join the conversation. Ask both a financial adviser and a solicitor to study the contract for you to ensure that it is in your best interests. Your adviser can help you with this choice. The simple answer is that it depends on your personal circumstances; all the more reason why you should take professional advice before you make a decision. Total lending also increased from £385.7m to £446.2m. If you are using a lifetime mortgage, it can be more cost-effective to take out a series of smaller loans rather than one big loan, as then you will pay less interest over time. These can make it very expensive to switch to a new, cheaper deal which leaves you a prisoner to your current provider. 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