What is equity release? The top 10 questions answered
There are many myths about equity release, from people thinking it isn’t safe, to people worrying that might lose their home, to what’s the catch? Hatty and Simon, the Financial Planning by TaxAssist equity release experts, run through the frequently asked questions and common misconceptions.
First things first, what is equity release? Equity release is a way of taking cash out of the value of your home for over 55’s as a tax-free lump sum without having to move.
1. Is equity release a safe option?
Yes absolutely! Before clients decide to proceed with equity release and unlock cash from their home, we provide clients with all the information they need to make a decision including risks and benefits. We only advise on products that subscribe to the Equity Release Councils' guarantees, which creates an extra layer of reassurance for our clients. Our clients have the ability to stay in their home for life, move when they want, and chose products which will mean no mandatory payments and a no negative equity guarantee. The equity release sector is one of the most heavily regulated in the industry so clients can feel confident in the planners they deal with and the safeguards built into the process.
2. What are the pitfalls of equity release?
Anyone considering equity release should be aware of the disadvantages as well as the advantages.
Disadvantages include the high potential overall cost in the long term. Releasing £75,000 through a lifetime mortgage at a standard 6.4% interest rate will equate to £158,000 total debt in 12 years. Which leads to the second potential disadvantage – equity release decreases the value of your home left to beneficiaries. It’s also mandatory to get professional advice and legal services, which add to the total cost of the process.
Equity release is designed to be a lifetime product – meaning it runs until the end of your life, this means the early repayment charges are very expensive if you want to exit early.
Finally, equity release will instantly increase your savings, which may impact your entitlement to means-tested state benefits including pension credits and council tax reductions. Anyone with more that £16,000 in savings is not eligible to receive Universal Credit.
3. What is the difference between equity release and a lifetime mortgage?
A Lifetime mortgage is a type of equity release. Other types of equity release include:
- Home Reversion (we do not advise on this)
- Retirement interest only mortgages
- Interest serviced lifetime mortgage
They all form part of the later lending that is available to clients from 55.
4. Can I move house with equity release?
You can move house when you release equity in your home. One of the benefits of the Equity Release Councils' guarantees are that you can move at any time (subject to lenders criteria) lenders will also build in benefits of downsizing protection. This means that usually after a period of 5 years, if you decide to move and the new home does not meet the lenders criteria to transfer the equity release to, the lender will waive any early repayment charges, but the balance of equity released will need to be repaid.
5. Is there a better alternative to equity release?
Alternatives to equity release include downsizing but and you will need to factor in the costs associated with moving house. Other alternatives include asking family members for support and help or looking into whether you qualify for state assistance or grants. We also consider conventional mortgage borrowing or loans, and finally we look to assess your savings and other assets that could be used to either as an alternative to equity release or to reduce how much is being borrowed through equity release.
There are alternatives to equity release which will have advantages and disadvantages to consider. We will always discuss and assess the viability of these alternatives before opting for equity release.
6. How much equity can I release from my house?
Typically, you can release between 20% and 50% of the value of your home. However recently, some lenders have reduced their loan to value ratios, so the amount of equity you can release will vary between lenders and on the market conditions at the time of enquiry.
7. Do I need a solicitor for equity release?
Yes, a solicitor is required for equity release. The solicitor provides an essential checkpoint to ensure that clients fully understand the legal implications and understand the product they are taking out. The solicitor has a duty of care to report this to the lender to confirm clients have been advised and counselled correctly. We can help our clients find a solicitor if they require help.
8. Is equity release a good idea in 2023?
Yes at any time it’s a good idea if you understand the risks and benefits and there is a clear need, we work with clients on a no pressure basis and they are free to take as much time as they need. Indeed there is evidence that many people are turning to equity release as a solution to the cost of living crisis.
9. Can you use equity release for care home fees?
Yes equity release can be used to pay for care home fees. If one half of a married couple needs to go into care, equity release can be used to raise the funds to help cover this. Equally if a client wants to stay in their home and raise funds to pay for in home care because they don’t want to leave their home, equity release can be used for this purpose.
10. Can you use equity release for a buy to let or second home?
You can release funds for a second home or to purchase an investment property. But you cannot take Equity Release out on a buy to let property, equity has to be released from your main residence.
Our Equity Release Advisors
My name is Simon Restieaux and I have been advising clients on releasing equity from their homes for 4 years. I hold a Certificate in Mortgage Advice and Practice (CeMAP) and Certificate in Regulated Equity Release (CeRER) and have a vast level of knowledge and experience to help support you in this journey. I have been providing advice for over 20 years to clients and make sure that I provide honest, tailored and friendly advice. My aim is to make sure you are supported every step of the way and to never feel pressured.
My name is Hatty Lawrence and I have been advising clients on equity release for two years. I hold a Certificate in Mortgage Practice, and a Certificate in Equity Release (Certs. CII (MP&ER)) and have been working in Financial Services since 2015. I particularly enjoy working with clients to build positive relationships based on trust and excellent customer service, as well as honest and personalised advice. I think these are essential elements in helping clients to achieve the best outcome to suit their needs.
Financial Planning by TaxAssist planners, Hatty and Simon are member of the equity release council, which exists to promote high standards of conduct and practice in the provision of and advice on equity release. Read more about Financial Planning by TaxAssist becoming a member of the Equity Release Council here.