Equity release - your 2020 guide

What is equity release?

Equity release, or Lifetime Mortgage is a tax free way to unlock some of the cash tied up in your home if you’re over the age of 55. The money can be released in one go, or in smaller amounts as required.

It can be used for home or garden improvements, to pay off existing debts or mortgages, for holidays, to help family get a foot on the housing ladder or to improve retirement funds by supplementing their pension pot.

You continue to own your own home and there are no monthly repayments to make.

Instead both the original loan plus interest is only repaid once you have either died, or moved into long term care and the house is sold.

You can use the money however you wish. If your equity release provider agrees, and subject to their terms and conditions, you still have the flexibility to move.

Types of equity release scheme

There are two main options that allow you to release equity from your home and remain living there:

Lifetime mortgage

A lifetime mortgage is the most popular option. It works like a normal mortgage, with a loan secured on your home. The difference is that you don’t have to make any monthly repayments.

Instead the interest builds up over the years and is only repaid when the last surviving plan holder dies or moves into long term care.

Home reversion schemes

These work differently as they’re not loans. With a home reversion scheme, you agree to sell all or part of your home in return for a lump sum of money.

As a result there’s no interest to pay. However, as the value of the property increases, you only benefit from the increase on the percentage of the home that you still own.

Home reversion companies take on the risk of unknown future property prices, so they are likely to offer you less than the actual property value.

When the property is sold upon the last survivor’s death (if joint) or because they’ve moved into a care home, the home reversion company will receive their share of the proceeds.

• For a lifetime mortgage you or the youngest homeowner must be 55 years of age or over
• For a home reversion plan, you or teh youngest homeowner must be 65 years of age or over
• Some lenders impose an upper age limit of 90 while others have no upper age limit
• Your property must be in the UK or Northern Ireland and your main residence
• Your property must be worth at least £70,000 and in good condition

If you have an existing mortgage you can still release equity from your home. However, that mortgage would need to be fully paid off with the money that is released.

The type of property  can also affect your eligibility for equity release. Most standard construction properties ie. brick, stone, tiled or slate roofed houses, flats and bungalows) are acceptable., Some lenders will also consider equity release on properties with certain non-standard features such as annexes and flat roofs, however these would be dealt with on a case-by-case basis, with some construction types presenting more challenges.

An advantage of equity release is that your income and expenditure  do not affect your eligibility, simply because there are no monthly repayments to be made.  Lenders are also more relaxed if you have a poor credit history, although this might depend on how bad the situation is.

Can you be refused equity release?

Equity release applications can be declined. Equity release lending criteria are based on the value of the property rising over time, so lenders look closely at issues that could affect the value and ability to sell the property.

Criteria vary between lenders, but the most common reasons given for refusing equity release are:

• ‘non-standard’ construction
• Risk of flooding
• Ex local authority
• Proximity to commercial property or electricity
• Flat roofs and single skin structures
• Poor condition and upkeep
• The presence of asbestos

Are equity release schemes regulated?

Lifetime mortgage and home reversion companies are regulated by the Financial Conduct Authority (FCA) which means there are safeguards in place to protect you.

In addition to the FCA controls, most providers are also members of the Equity Release Council (ERC), which sets the standards for equity loans including a ‘No Negative Equity’ guarantee. 

This guarantee ensures that once the property is sold and the solicitors and agents fees have been paid, if there is insufficient money remaining to pay the outstanding equity loan, neither you, your family or your estate will be liable to pay any more.

In addition, the ERC also stipulate that members allow homeowners:

• The right to remain in their home for life or as long as they choose
• The flexibility to move to another property without financial penalties

Over50choices is also a member of the Equity Release Council and authorised by the Financial Conduct Authority.

Is it secure?

Yes, as long as you ensure the provider you choose is a member of the ERC. You can use the ‘find a member’ portal on their website to find out whether your chosen equity release scheme is secure and that you are covered by the no negative equity guarantee.

But taking out an equity loan is a big decision and one that could affect your family and any benefits you may receive, so it does require careful consideration.

Which is the best equity release scheme?

If you’re considering a lifetime mortgage, it’s important to choose a company that is a member of the Equity Release Council so you know they abide by their rules and you are protected.

The 13 providers currently registered with the Council are:

• Canada Life
• More 2 Life
• Aviva
• Hodge Lifetime
• LV
• Nationwide
• Responsible Lending
• Legal & General
• Just
• Retirement Plus
• One Family
• Pure Retirement
• Retirement Bridge

Do banks offer equity release?

None of our high street banks offer their own equity release schemes directly to customers.

Lloyds Bank and TSB refer customers to Scottish Widows, which is part of Lloyds Banking Group for lifetime mortgages. Santander refers customers to Legal & General- a lifetime mortgage lender. L& G in turn use Key Retirement to provide advice on equity release to customers.

It’s important to seek professional advice to compare the market and decide whether equity release is a good idea for you. This can be done either through an equity release qualified IFA or an independent broker.

The benefit of using an independent broker is that they will compare equity release plans across the whole of the market and not just individual companies. This will give you a much broader view of the best and most suitable company for you.

Having reviewed the market, we have teamed up with leading award winning specialist, Age Partnership. They offer initial free no obligation help and advice, and have agreed preferential rates with leading lenders that you may not be able to get elsewhere.

They can talk through your requirements and compare leading ERC providers, review the best equity release interest rates and help you decide on the right scheme for you.