Equity release is becoming an increasingly popular way for those nearing retirement to access the money tied up in their homes. In fact, according to the Equity Release Council, the number of equity release plans being taken out has hit a record high - with the number of equity release products on the market almost tripling in the last 12 months!
If you're thinking about releasing equity from your home, now might be the best time to do it. Keep reading to find out why...
“One of the main advantages of equity release is that it gives you access to cash without having to move out of your home or downsize. This can be a big plus point for retirees who have built up a lifetime of memories in their current property and are not ready to leave it just yet.”
Equity release can also be a more flexible way of borrowing than taking out a traditional re-mortgage or secured loan. With a re-mortgage, you would usually have to make monthly repayments, which can be difficult to afford on a fixed income. With equity release, there are no required monthly repayments, so you can use the money however you like without having to worry about making repayments each month.
While equity release has been around for a while, it’s only recently that more and more people have started to take advantage of it. This is largely due to the introduction of new products which offer much more flexibility than the traditional type of plan. Newer products with features such as the ability to make partial repayments, or draw down money in stages, have made equity release a much more attractive proposition.
Another reason to consider releasing equity from your home now is that property values are currently at an all-time high. This means that you could release a large lump sum of cash while leaving plenty of equity in your property.
And although interest rates are on the rise, they are still relatively low in historical terms - so it's likely that the amount of interest you will accrue on your equity release loan will be lower than it would have been not too long ago
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Just like those with a traditional mortgage, if you already have an equity release plan in place, you can switch products to a new deal with more favourable terms. Equity release providers have been coming up with more and more innovative products in recent years, so if you took out an equity release plan a few years ago, there’s a good chance there are now better deals available. With rates rising, it could be beneficial to lock into a fixed-rate offer now to protect yourself against future increases. And with competition in the market driving down rates, there has never been a better time to shop around for a better deal.
To give you an idea of what is currently available and help you decide what type of product might be right for you, here’s a round-up of some of the newest equity release products on the market and how they differ from other, more traditional equity release products.
Lump Sum Plans:
With a lump sum plan, you can release a one-off lump sum of cash from your property. This money can be used for anything you want, from clearing debts and making home improvements, to paying for care costs or going on a dream holiday. These plans are usually flexible and give you the option of choosing whether to make interest repayments or allow the interest to roll up.
Drawdown Lifetime Mortgage:
With a drawdown plan, you can release money from your property in smaller amounts, as and when you need it. This could be a more flexible option if you're not sure how much money you'll need in retirement or if your needs might change over time. A drawdown plan is the most popular lifetime mortgage, and because interest is only payable on the amount you borrow, this type of plan can help to reduce the final amount of interest you pay.
Retirement interest-only mortgages:
Retirement interest-only (RIO) mortgages work in a similar way to standard interest-only mortgages, but they're available to people over the age of 55. As such, they are particularly popular for those who are unable to get a traditional mortgage in retirement. With an RIO mortgage, you only have to pay the interest on your loan each month and not the full amount borrowed. The outstanding balance is repaid when you die or move into long-term care. If you have plenty of disposable income and prefer to service the interest charged rather than rolling up, this plan is a great option for retaining a good amount of equity in your property and maximising the value of your estate.
Voluntary Repayment Plans:
All equity release plans will have a 'no negative equity guarantee', which means that you (or your estate) will never owe more than the value of your property. However, with voluntary repayment plans, you are given the option to make partial or full repayments on the loan amount, giving you greater flexibility and control over how much interest accrues. With this plan, instead of the interest compounding, you have the flexibility to repay up to 40% of the original loan amount per year. Different lenders offer different repayment options, so it's important to check before you apply.
Second/Holiday Home Plans:
Whether it’s a holiday home by the sea or a city bolthole for when you want to get away from it all, a second property can be a great addition to your retirement portfolio. Equity release can be used to fund the purchase of a second property, providing you with a lump sum of cash that can be used as a deposit.
Alternatively, if you already own a second property - maybe one that's currently rented out - you could also release equity from your second home with a specialist equity release plan. This could give you the extra cash you need to fund retirement, make home improvements or pay off debts.
The type of equity release plan you choose will generally depend on a few factors, such as your age, the value of your property and what you need the money for. For example, if you're looking to release a lump sum of cash, then a lump sum plan would be more suitable. If you need the money to supplement your income in retirement, then a drawdown plan could be a better option.
Eligibility for most of these products requires that you are a homeowner over the age of 55. However some are more suitable for certain age groups than others, so it's always best to speak to an equity release specialist before deciding which product you should opt for.
If you’re looking for a way to access the cash tied up in your home, equity release is definitely worth considering. As with any financial decision, it’s crucial to seek professional advice to help you decide whether equity release is the right choice for you and your individual circumstances. It’s not for everyone, and you may prefer to sell your property and downsize. But if you want to stay in your current home and have the flexibility to spend the money how you like, equity release could be the perfect solution.
EQUITY RELEASE REDUCES YOUR ESTATE'S VALUE AND MAY AFFECT ANY MEANS-TESTED BENEFITS YOU'RE ELIGIBLE FOR. A LIFETIME MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.
Equity Release Mortgage Advice Ltd is registered in England & Wales, No. 09856670. Registered office address, 21a Churchyard, Hitchin, Hertfordshire SG5 1HP
Equity Release Mortgage Advice Ltd (FCA no.725996) is an appointed representative of JLM Mortgage Network Ltd. which is authorised and regulated by the Financial Conduct Authority (FCA) registration number 300629 We are entered on the Financial Services Register at https://register.fca.org.uk/. The FCA do not regulate some forms of mortgages.
The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
Should you have cause to complain, and you are not satisfied with our response to your complaint you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows: The Financial Ombudsman Service Exchange Tower, London, E14 9SR Tel: 0800 023 4567 or 0300 123 9 123 www.financial-ombudsman.org.uk
We charge a standard fee of £1250* on offer, payable at completion. We will also be paid commission by the lender.
*For standard Equity Release applications, a fee of £1250 will be payable upon a mortgage offer being issued. For Equity Release further advance applications, a fee of £995 will be payable upon a mortgage offer being issued. For complex Equity Release applications, a fee of £1750 will be payable upon a mortgage offer being issued. We will also be paid commission by the lender.
A complex case could be described as, but not limited to; Clients who have lost capacity either with Lasting Power of Attorneys or deputies appointed by the court of protection; Equity Release Purchase applications; Equity Release for divorce cases; Known problems with property or location which might lead to multiple applications