With the rising prices of everyday life more and more people are finding that their pension savings, together with the state pension are not providing sufficient income to meet all their needs in retirement. If you do not have sufficient savings or assets your home could be a good way to help boost your pension. Britons own significant amounts of equity in their homes.
There are THREE main types of EQUITY RELEASE PLANS:-
- LIFETIME MORTGAGES:- These have been regulated since 2004. Take a loan out on property in return for a tax free lump sum, an income or a combination of the two. Like a standard mortgage the loan is secured against property and you continue to own your own home. The loan will be paid off at the time of death of the last person or their move into long term care.
- HOME REVERSION PLANS:- These have been regulated since 2007. This involves you selling all or part of your home to a company in return for a lump sum or regular income and the right to remain living there. When you die or move into long term care, the provider will be entitled to its share of the property’s value at the prevailing market rate. The balance of the property that you didn’t sell goes to your estate. The amount you can raise depends on age, but tends to be between 35% and 60% of the market value of the property.
- SALE/RENT BACK SCHEME:– These plans provide a quick sale. Your property is sold for a price below market value. You would continue to live in the property with a shorthold tenancy agreement. These plans are not age restricted but monthly rent must be paid to avoid eviction. Rent can increase over the period.
ELIGILBILITY CRITERIA:- To qualify for equity release you need to be a homeowner. The youngest applicant needs to be aged at least 55 years (For Home Reversion Plans the age may be higher). You would also need to find out the value of your home.
Looking through the property pages may give you some idea of the valuation of your property or you can obtain a precise valuation from a qualified surveyor. You must also have buildings insurance in order to take out a plan. Your state of health may also be taken into account. If you still have an outstanding mortgage on the property you will need to pay it off either by using some of the proceeds from the equity released or other funds.
Make sure the plan you choose does what you want it to do. Do you wish to draw money as and when you want to or do you want to release a single lump sum? Are you looking for something that will give you a regular income? Are you happy transferring ownership of your home or having a legal charge on your home? Any monies released to you may affect your state benefits and Inheritance Tax position. Furthermore Equity Release may affect your family’s inheritance.
Study the Key Facts Illustration which is produced from the provider. Your financial advisor must obtain this when getting a quotation. This will show the impact of the interest rate on your loan, or in the event of a reversion, it will show the percentage of your home you have sold. Also consider the long-term impact of house prices inflation if house prices increase or decrease. Whilst the projected amount of the loan may seem like a lot, think about how inflation will affect the true amount.
There will be fees involved in taking out a plan. These will vary from provider to provider but will be shown on the Key Facts Illustration.
These plans are intended to be long-term loans. Check to see what early repayment charges, if any, you could be charged if you were to repay the loan early.
Equity Release plans are carefully regulated by the Financial Services Authority.
You should always seek professional advice. It is important to check whether there are other ways in which your financial needs could be met before choosing an Equity Release Plan.
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