How equity release works and why more people are cashing in on their homes
Most commonly, this is used for general financial support, to pay for work on homes and as gifts to family members, according to customer data from Legal & General Home Finance.
Its lifetime mortgage customers in Yorkshire released an average of £56,700 each from their properties last year.
The product allows those age 55 or over to take out a loan secured on their home. Costs include appointing a solicitor who specialises in equity release to act for you and give you independent legal advice.
The adviser will then help you submit the application to the chosen lender.
They should point out that having a lifetime mortgage will reduce the size of your estate and the amount you’ll be able to leave behind for loved ones.
If house prices fall or stagnate, you could also find your debt growing at a faster rate than the value of your property, reducing your overall equity.
However, there is a counter argument in that it can help reduce a potential inheritance tax bill and provide a living inheritance by freeing up cash that you can use to help yourself and your family now.
The amount of money that can be released depends on age and your property’s value.
There are no fixed end dates with lifetime mortgages and they are due for repayment once the last homeowner either moves into long-term care or dies.
Interest rates are typically fixed for life and the amount borrowed, plus interest, is repaid at the end of the term, usually through the sale of the home.
However, Legal & General say that many customers now choose to pay the interest on the loan each month to stop the amount they have borrowed from increasing as compound interest.
Some lifetime mortgage providers also offer a no negative equity guarantee, which means the money that will eventually need to be paid back will never be more than the total value of the home.
Andrew Milnes, principal at the Mortgage Advice Bureau in Bingley, says: “More people are now considering equity release and the positive is that there are now a number of very reputable equity release firms around and the offering has certainly advanced in the last few years to be more adaptable, affordable and consumer friendly.”
Andrew warns that it is vital to get good independent advice and look at equity release as just one of the options.
He says: “A number of mainstream lenders will now consider lending past normal retirement age and there is even one lender in the marketplace who will consider loans for customers up to the age of 95.
“That said equity release is not to be feared and does serve a very viable purpose in the marketplace for a number of people.”
Craig Brown, CEO of Legal & General Home Finance, says that gifting to family members to help them buy a home or move up the property ladder remains a very popular use of equity release funds and he expects this to continue.
He adds: “Customers also often use the money to make vital home improvements through renovations, such as replacing a boiler or installing insulation, which can help to increase the longevity of the property and allows people to stay comfortably in their own home for longer.”
Once an arena fraught with malpractice, equity release now has some of the most stringent safeguards of any financial product.
It will be explained to you that compound interest on these loans can add up to a considerable sum and that must be borne in mind.
Craig Brown says: “Customers must speak to a specially qualified financial adviser to see if it works as part of their longer-term
“Equity release may not be suitable for everyone, but it can be an important consideration as part of a wider approach to retirement planning.”
Evadne wanted to help her son, who was living with her, get on the property ladder and took out a lifetime mortgage with Legal & General.
She says: “My son had never been in a position to save up enough for a deposit and so I started investigating to see how I could help him and I spoke to a couple of financial advisers.”
When taking out the lifetime mortgage, she also factored in a new look lounge and a couple of holidays for herself.
She adds: “The lifetime mortgage has ensured that my son now feels secure. That is worth more than any money, anything in the world and I am so happy he feels that way and I am very happy I was able to do that for him.”