Equity release is a means of retaining use of your house or other object which has capital value, while also obtaining a lump sum or a steady stream of income, using the value of the house. The “catch” is that the income-provider must be repaid at a later stage, usually when you die. Thus equity release is particularly useful for elderly persons who do not intend or are not able to leave a large estate for their heirs when they die.
EP Wealth Management Ltd are authorised to give advice on equity release, please read on for a brief overview of the products available. Our team are on hand to talk you through the individual options available to you.
Types of Equity Release Plans
The UK equity release market is basically made up of two types of equity release plan. The most popular plan is a lifetime mortgage – where the homeowner retains ownership of the property but the property is charged with the repayment of a loan or mortgage, which accrues rolled up interest over the period of the homeowner’s lifetime. To help customers decide whether equity release is right for them, a number of companies provide a free equity release calculator to show a rough estimate of the amount of equity that could be released.
The other type of plan is a reversion plan – where the homeowners sells all or part of the property to the equity release provider in return for a right to remain there rent free.
The UK equity release market is now fully regulated. Both lifetime mortgages and home reversion plans now fall under the remit of the Financial Conduct Authority (FCA). Prior to FCA regulation, many lenders signed up to SHIP, a voluntary code of conduct that provides a number of guarantees.
Advantages of Equity release
- It can provide a lump-sum of tax-free cash or a steady income (annuity), which can be index-linked, for the rest of your life.
- It can reduce the amount of inheritance tax paid by your estate.
- The no negative equity guarantee (NNEG) protects the borrower in the event of a downturn in the housing market.
- If interest rates fall, borrowers are free to refinance their mortgages at a lower cost with other providers.
Disadvantages of Equity Release
- It may decrease the amount of money your family will inherit upon your death – assuming the value of the property grows at a slower pace than the interest rate on the mortgage.
- It may reduce the amount that you can bequeath to charity.
- In the UK, it may impact any means tested benefits that the borrower may be entitled to.
- It’s far more expensive than selling the property to release equity
- Equity Release as a retirement option
Equity Release as a retirement option
Increasingly, equity release is being considered as part of retirement planning for clients, as people look for ways of improving their income in retirement. Using what is often their biggest financial asset, bricks and mortar, can prove to be an appropriate solution. We at EP Wealth Management Ltd are not authorised for equity release but we have access to authorised equity release advisers who can guide you through this process. Dependant upon the adviser referred to a fee may be payable for equity release advice.
An equity release product will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefits.
To understand the benefits and risks please ask for a personalised illustration