What is equity release?
Blake and Day Independent Financial Advisors helping to explain Equity release, and how it can help you to unlock cash from the value of your home.
Financial freedom in later life can help you in a number of ways – renovating your home, helping your children, or simply supplementing your income – equity release is designed to help.
The type of equity release we offer is a lifetime mortgage. It’s a long-term loan on the value of your home, which is repaid, usually from the sale of your home, when you (and your partner, for joint lifetime mortgages) die or need to go into long-term care, subject to our terms and conditions.
Entering into a lifetime mortgage will reduce the amount of inheritance you can leave behind. It may also affect your tax position and eligibility for welfare benefits.
Later life with the help of a lifetime mortgage
At Blake and Day we offer lifetime mortgage. It’s a way of accessing some of your home’s value and using it however suits you best.
Whether that’s through making those vital home improvements or heading on a trip of a lifetime — the choice is yours.
How does a lifetime mortgage work?
How do interest and repayments work?
No need to make any monthly repayments. Instead, interest is added each year, both to the initial loan amount and any interest previously added, which quickly increases the amount you owe. The loan and interest are repaid, usually from the sale of your home, when you die or need to go into long-term care, subject to our terms and conditions.
Will you receive your money all at once?
At Blake and Day we offer two lifetime mortgage products, so you can either choose to receive a one-off lump sum payment, or choose to receive a smaller lump sum and set up a cash reserve to draw from when you wish. So, you can take the money in the way that suits you best.
Although it’s important to remember that a lifetime mortgage will reduce the amount of inheritance you can leave and may affect your tax position and eligibility for welfare benefits.
Benefits and risks
Our lifetime mortgage can help you release capital in retirement and build the lifestyle you want in later life. But it’s important to weigh up both the pros and cons before applying.
You'll remain a homeowner
You’ll retain full legal ownership of your home.
No negative equity guarantee
You or your estate will never have to pay back more than your home can be sold for, providing it’s sold for the best price reasonably obtainable.
Flexible withdrawal and repayment options
Our lifetime mortgages give you the option to receive either a one-off lump sum or a smaller cash sum with a cash reserve to draw from. You’ll only pay interest on the money you withdraw and voluntary partial repayments can be made, subject to our terms and conditions.
Tailored interest rate
We tailor our interest rates to each individual application meaning you’ll always get a fixed rate that will never increase and is unique to your personal situation.
Leave part inheritance
You can safeguard a percentage of your home’s value to leave behind as an inheritance although this will reduce the amount you’ll be able to borrow.
Potential tax and welfare benefits impact
Build-up of interest
Research shows there is a lot of misunderstanding in the later life lending market. I often have conversations with clients who make statements such as ‘I do not want to leave a debt to my family’ or ‘I cannot release equity as I still have a mortgage’. What does not help with this markets poor reputation, is how quickly the debt can increase. Just a few years ago, typical interest rates where at 5.5% meaning if no interest or capital payments were made, the original debt would double in 12 or 13 years. Now interest rates are so low, a typical product at 3% takes 23 to 24 years to double.
Everyone’s personal circumstances are different and later life lending is not suitable for everyone but for many, it can transform their life or their loved ones. The past decade has seen a flurry of product launches and innovation meaning the options available for the 55’s and over has expanded hugely.
There are a variety of reasons for borrowing in later life. It could be to pay for home and/or garden improvements to make your retirement more comfortable. To pay off debts helping you keep more of your monthly disposable income. To help family members financially, such as getting on the property ladder themselves. It could even be to buy a new car or plan some holidays. The reasons for this type of lending is endless and can improve your financial circumstances. On all these options though, it is important to seek financial advice from a qualified adviser.
Some Typical Myths are:
Myth #1 – You’ll end up owing more than your home’s worth
Years ago, this was a common complaint as the lower standards in the sector meant that some customers could end up owing more than their home’s value. This is no longer an issue as most providers offer a ‘no negative equity guarantee’. This means you will never owe more than your home is worth, even if house prices fall significantly and the interest rolls up above that value, this sum would be written off. It is worth noting here that with interest rates at an all-time low along with so much competition in the market, later life lending has never been so cost effective.
Myth #2 – You cannot release equity if you still have a mortgage on your property
This is not true. In fact, this is a legitimate way to pay off your current mortgage, especially where the current mortgage is going to expire soon and due to the various lenders age restrictions, re-mortgaging could present a challenge. Certain later life products do not require any repayments so this could help if your disposable income is not sufficient.
Myth #3 – You won’t be able to move home
Much like with a traditional mortgage, you’ll be able to move and take your later life lending agreement with you – provided the new property meets the eligibility criteria of your provider. If it does, it should simply be a case of transferring the plan to your new home.
Myth #4 – I’ll have to make monthly repayments
Depending on the product chosen, this is not the case. This will form part of the decision to which product is right for you. Whilst some products do require a monthly repayment, many do not. You can choose to make some, all or none of the interest payments over the life of your plan.
Myth #5 - You’ll be forced to move out if your partner dies or goes into long-term care (or vice versa)
Typically speaking, if you’re living with a partner, you’ll probably be taking out a joint lifetime mortgage. If this is the case, there’ll be no need for you to move out of the property if your partner dies or goes into long-term care – the plan will run for as long as you remain in the property. However, if a partner moves in with you after you have already taken out a lifetime mortgage, they may have to move out when one of these events happens.
Myth #6 - It’s not regulated
The Financial Conduct Authority (FCA) regulate all later life plans.
Myth #7 - You have to repay the loan by selling the property
Actually, this isn’t set in stone, and there’s the possibility that your beneficiaries may choose to repay the loan another way. Most do this by selling the property, but they by no means have to – if they’ve got other funds available, either personally or through any additional monies from your estate, they could theoretically pay back the loan via other means and keep the family home. An important point to note is that the plan must be repaid within a specific period of time, usually 12 months from death.
Myth #8 – You have to take a lump sum payment
Not so. While it’s true that a lot of people choose a lump sum equity release plan – which, as the name suggests, means you get the full loan amount in one go – it isn’t the only option. Drawdown is becoming increasingly popular, with this plan type allowing you to “draw down” sums of money from your home as and when you need it. The advantage of this is that interest is only charged on the amount you’ve actually withdrawn, and as you’re taking smaller sums over a longer period of time, the resulting interest payment will be lower. This method could also be a viable way to supplement your pension income, letting you drip-feed smaller sums into your finances rather than taking the full amount of equity available to you at the outset.
Myth #9 - You won’t own your home
There’s a common misconception that all equity release plans mean the provider owns your home, with you merely being granted the right to continue living there. This is false – equity release in the form of a lifetime mortgage is simply a method of borrowing against your property, much like any other mortgage, with the difference being that you don’t have to make any repayments in your lifetime (unless you want to). There is a second, less common, method of equity release called home reversion, where you do sell all or part of your home to the provider.
With a lifetime mortgage you’ll continue to own your home, and as such can make any modifications you deem fit. Even when it’s time to repay the loan, the equity release provider won’t have any claim to the house itself – they’ll simply need to be repaid the amount they’re owed, usually through sale of the property, but as discussed above, if other money is available (e.g. if there’s sufficient money left in the estate) your home may not even have to be sold.
When contemplating later life lending, other options should also be considered. Have you thought about downsizing property and freeing up the equity? Do you have other savings that could fulfil you aims? Can a family member help, or would you consider taking in a tenant? Could you use your existing pension pot? All of these have there own advantages and disadvantages but all should be deliberated.
Please note – receiving a later life lending product may affect your ability to claim any state benefits that are means tested. Legal advice should be taken on any later life lending products.
With so many lenders and products now in the market, coupled with low interest rates, later life lending products are worth considering as part of your Financial Planning, especially if you want to enjoy your retirement.
Here at Blake and Day, we are registered for all types of mortgages and additional borrowing. Please contact Mark with any queries you might have and he will be more than happy to help you.
Are you eligible?
The amount of equity you can release depends on several factors such as age, property value and property type.
To apply for a lifetime mortgage:
1) Be aged 55 or older (for joint applications, all applicants must be over 55).
2) Own a home within the UK (excluding the Isle of Man and the Channel Islands) worth £75,000 or more.
3) Want to borrow at least £15,000.
4) Live permanently in your home. The property must be your main residence and shouldn’t be unoccupied for more than six months at a time.
5) You are mortgage-free, or have only a small mortgage remaining on your property. Any outstanding mortgage must be repaid from the money you receive.
HOW TO APPLY
At Blake and Day we help you all the way through the process from the start to the finish of youThe lifetime mortgage application stage to when you receive your sum. It’s a big decision and a lot to think about. Here’s how the process works below.
1. GET EXPERT ADVICE
2. THINK IT OVER
3. APPLICATION COMPLETE
At Blake and Day we can put you in touch with an equity release adviser who’ll review your needs and future plans with you in person.
If our lifetime mortgage is right for you, they’ll be able to give you a personal illustration and highlight the benefits, as well as the costs and risks. A financial adviser may charge for their services.
Discuss your plans and options with your family and decide whether a lifetime mortgage is right for you.
If you decide to go ahead, We’ll then arrange an independent valuation of your home and confirm exactly how much money you can release, provided it meets our requirements.
Once we’ve reviewed your application, you’ll receive your offer which will confirm the amount you can borrow.
At Blake and Day we advise you discuss the plan with your financial adviser and solicitor, then sign the legal paperwork.
When everything is complete, you’ll receive the money through your solicitor.
When I was introduced to Mark at BD Financial I was not sure about Equity Release and whether it really was the right option for me, but the way Mark explained everything and looked into all the other options, like selling my house and downsizing, it turned out to be the best option. The whole process went very smoothly, and I would recommend Mark and Blake and Day to anyone considering a lifetime mortgage.
I was unable to fault the professional service provided by Claire at BD Equity Release. Everything was explained in full detail and with no pressure to take out a policy at any point. Very professional service, which I would recommend to anyone considering equity release.
What a great service I experienced on my Equity Release journey with Blake and Day, I was kept up to date on the whole process, which went through smoothly from start to finish. I would recommend Debbie and her staff without a doubt.
Being independent we can check across a wide range of lifetime mortgage providers.