Since their inception back in the 1960’s, equity release schemes have been utilised to tackle the issues surrounding funding shortfalls in retirement. They were particularly targeted towards retired individuals on low pensions & poor retirement incomes. This enabled retirees who were looking to enhance their lifestyles, to enjoy their remaining retirement years. With the help of home equity release schemes, pensioners can now release some of the equity contained within their property, thereby meeting their goal of an enjoyable and more comfortable retirement.
Types of Equity Release Schemes
Over the years, equity release schemes have undergone radical improvements and changes to their make-up. They have seen many highs and lows along the way, particularly with some of the ill-advised schemes such as Shared Appreciation Mortgages (SAMs) and Home Income Plans. Nevertheless, there have been positive overtures, the likes we are seeing now with recognition from politicians, the tabloids and the general public in conjunction with the progress made by the quality of advice provided and the Equity Release Council (formerly SHIP).
The two types of equity release schemes that have evolved today are the lifetime mortgage and home reversion:-
- Lifetime Mortgage – exists itself in a variety of formats ranging from the roll-up lifetime mortgage, to the interest only lifetime mortgage and finally the recent innovation of the enhanced lifetime mortgage plan. Essentially, a lifetime mortgage is a secured loan on your main residence, whereby a percentage of the value of the property can be released dependent upon the property value & the age of the youngest homeowner.You can now decide whether to make any monthly payments or not.
If no monthly payments are made then the interest will roll-up and compound over the term of the contract. Effectively, this means the balance will increase year-on-year and reduce your inheritance accordingly.
If you decide you wish to contribute towards the interest charged with an interest only lifetime mortgage, and the full monthly payment is made, then the balance will remain level for the rest of your life as long as payments are maintained for the duration.
Both types of lifetime mortgage work on the same principle in that the plan will run until the last person has died or moved into long term care. The beneficiaries then usually have 12 months to sell the property, the proceeds from which will repay the equity release provider.
- Home Reversion – is the more traditional type of equity release loan. Home reversion plans work on the principle that in order to acquire a tax free lump sum, you sell a proportion of the property to the home reversion provider. Depending on the amount your require will determine the amount of the property you need to transfer over.
In essence therefore, you will become a co-owner of the property with the reversion provider. This has its advantages and disadvantages. Some people do not feel comfortable with not 100% owning their property and therefore will shy away from such products. However, if a guaranteed inheritance is required then a home reversion plan comes into its own. The reason for this is down to the fact that if you sold 40% of the property, you will always retain 60% of the title.
Therefore, you will still benefit from any escalation in house prices on your 60% ownership, but also when the property is ventually sold your heirs will received a guaranteed 60% of the final sale proceeds. For people who prefer that certainty, home reversion schemes have been a solid solution to this age old issue of inheritance.
Applying for equity release
Applying for equity schemes is a simple enough process with the assistance of an independent financial adviser. Equity Release 2go have advisers that are equity release qualified and conform to the SHIP standards (now Equity Release Council). Therefore you can be assured that ALL equity release mortgages are compared from the whole of the equity release market, to ensure the right equity release scheme is sourced and implemented.
Equity Release application process
Starting with completion of a simple application, your adviser will then take any necessary documentation to support this such as ID, buildings insurance schedule and a valuation fee, if applicable. After sending the application to the equity release company, an independent surveyor will then arrange a valuation date & complete a report after visiting your property. Upon successful acceptance from the lender, an Mortgage Offer document will be sent to your solicitor, a copy of which you will receive in the post.
Your solictor will then complete the formalities of obtaining signatures & any additional property information they require in order to complete. A date will then be set for the funds to be release by the equity release company & the funds will then be send via your solictor into your nominated bank account or payment by cheque.
Throughout the equity release application process, you will be kept abreast of the plans progress and in association with your solicitor we can ensure as smooth process as possible. To assist in these matters, Equity Release 2go can provide details of solicitors that are members of ERSA (Equity Release Solicitors Alliance). This provides further protection and helps keep your application costs to a minimum with fixed fee agreements that have been set for all our clients.
Amount of equity in your home
With a property market which is currently in a state of inertia, many people are asking the question ‘how much is my house worth?’. Therefore, if unsure of how much a property is worth it is sensible to conduct an element of research yourself locally. Maybe contact a local estate agentwith a view to obtaining an approximate valuation a property as they will have more of an idea as to what similar properties may have sold in the meantime. Online resources such as Zoopla or nethouseprices can also help here by being linked to the land registry & advising which properties on your street, or postcode have sold in the last 5 years.
It is important to note that the property value should be £70,000 or more. Understand that the mortgage you owe will be calculated according to the value of your home and the age of the youngest homeowner. It would be wise for the property to have been maintained to a good standard and free from any essential repairs otherwise lenders may insist on certain conditions to your equity release offer, such as a retention
So why wait?
Call 0800 321 3156 to speak to a qualified equity release adviser who can complete your request successfully and swiftly.
Alternatively, click here to complete a contact request form if you require any further information.