Equity release is a booming market. You can take the money you release as a lump sum or, in several smaller amounts, or as a combination of both. Here, we answer some of your frequently asked questions around equity release.
It may sound simple once it’s explained but there are still a lot of questions that we repeatedly encounter around equity release. At Acumen, we are here to offer you advice on equity release, so that you can decide which option or product is right for you. Releasing equity from your house means that you can:
- Stay in your own home
- Be independent to make the most of retirement
- Release a cash sum that could make a big difference to your retirement
How does equity release work?
There are two main ways to release equity from your home:
1. Lifetime Mortgage – With this type of equity release scheme you don’t need to make any repayments over the lifetime of the loan. Instead, the interest is gradually added until the final repayment is either:
- At the end of your life or
- If you move into long-term care
You’ll be able to keep your home and also benefit from any future house price growth if your house goes up in value.
2. Home Reversion Plan – With this type of equity release scheme, someone else buys a share of your property. When your home is sold, they get a share of the sale proceeds. You’ll continue to own your share of the property to pass on to your family but you won’t be able to change your mind and go back on your decision. You won’t benefit from any future house price growth if your house goes up in value.
Are equity release schemes a good idea?
Equity release is a commitment you make for life, so it needs to be thought through very carefully. At Acumen, we would always advise you to consider all the alternative options before deciding if equity release is a good idea.
Other options might include:
Making sure that you’re already claiming all the benefits and grants that you’re entitled to – Equity release can affect some state benefits so you’ll need to talk this through with whoever is advising you.
Moving to a smaller property to release funds – Lots of people ‘downsize’ to a smaller property when their children leave home.
Asking your family for financial help – In some cases, you might be well advised to ask your family for financial help if they are supportive and have the equity to help you.
What are the best equity release schemes in the UK?
At Acumen, we are fully aware that this trend is going to continue, which is why we make sure that our up to the minute advice around products is combined with protecting you as the consumer to offer you the best possible equity release options.
Whatever your motivation or reason to release equity – from freeing up the capital locked in your home to increase your income, maintaining your standard of living, or passing on wealth to your children, talk to one of our dedicated Acumen team members about equity release today.
How much does equity release cost?
The rate of interest charged on your loan will either be fixed or variable. Variable interest will be capped to limit the amount you can be charged at any time. If the rate is fixed, it will be fixed each time you withdraw funds. It is possible over time that you could have several amounts of money released at different times, which would each be subject to a different fixed rate of interest. This would then be added to your borrowed total.
You wouldn’t have to pay back any of this money until your plan ends and your property is sold or you choose to repay the loan. However, when you take out your plan, you will be expected to pay a number of setup fees. These standard charges will include fees for the provider, your adviser, your solicitor and a surveyor. Here at Acumen, our advisers will give you clear and detailed information about all the potential costs associated with setting up an equity scheme, so you can make an informed decision.
You might incur expensive early repayment penalties, especially if you cancel an equity release scheme within the first five years with a lifetime mortgage. Always discuss your options thoroughly with an accredited equity release adviser, like Acumen, before making any decisions.
Can equity release be transferred when I move house?
It’s generally possible to transfer an equity release mortgage to a new property. Your mortgage company will have criteria for your new home, which will be the equivalent of taking out an equity release mortgage as a new customer. Your mortgage provider won’t accept properties that can’t be sold on the open market, such as homes in retirement complexes.
Transferring an equity release scheme could incur additional costs, due to the fact that new paperwork will be required for the new property. Most lenders insist on a new application, which involves all the same aforementioned fees: application charge, solicitor’s fees, adviser fees and a valuation fee.
If you are downsizing, you may be required to pay off some of the existing balance on moving to a lower value house. The maximum borrowing amount for the new valued property may not be sufficient to pay off the balance of your former property. In which case, a capital sum may be needed to pay off the balance. However, this would invariably come from the equity raised by downsizing. There is no penalty for taking this action.
How does equity release affect benefits?
It’s worth noting that if you subscribe to an equity release scheme to take money out of your property, there may be unintended consequences for any state benefits you receive or might be entitled to. Many benefits are means-tested, which involves the government or your Local Authority assessing your savings, income and other assets to determine what level of benefits you could be entitled to.
Pension credit and council-tax benefit are dependent on you having a relatively low income and low savings levels in retirement. Therefore, if you are considering an equity release plan to boost your retirement income, or to generate a lump sum, it’s crucial that you weigh up the implications this could have for any benefits you are receiving or may be entitled to.
If you’re receiving benefits, then you’re obliged to tell the authorities if your financial circumstances change. In which case, signing up for equity release could affect your state payments.
Are equity release schemes safe?
Equity release schemes come with a certain degree of risk. As such, they’re regulated by the Financial Conduct Authority (FCA), which means that equity release providers are governed by strict rules about how fair and transparent they have to be in the advice they give about equity release. This applies to Acumen and all of our equity release experts. We go to great lengths to comply with FCA regulations and are fully committed to providing you with all the latest information and comprehensive advice surrounding equity release.
As part of our commitment, we ensure that all of our Independent Financial Advisers (IFAs) are registered with the FCA, provide completely impartial and independent advice and are fully qualified to give you the fairest and clearest advice available about equity release. We also endeavour to make complaints, queries and compensation procedures clear and easy to understand. Furthermore, we are careful to explain all the potential risks associated with equity release.
Who are the Equity Release Council?
The Equity Release Council is a not-for-profit organisation that acts as the equity release sector’s industry body. It works towards the safe growth of the equity release market and builds on the legacy of its predecessor: SHIP (Safe Home Income Plans). Launched in 2012, the Equity Release Council represents more than 180 member firms and over 500 individuals. This includes lenders, qualified financial advisers, conveyancers, surveyors, and other industry professionals.
Acumen is fully committed to the Council’s aims and objectives of ensuring the best possible outcomes for our clients embarking on equity release schemes. We aim to work within the Council’s guidelines to ensure that we provide the highest standards of advice to our clients; empowering, educating and protecting them throughout the process.
Disclaimer: This material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
Contact us on 0151 520 4353 or email [email protected].