Analysis of figures for Q3 2021 by financial services organisation Canada Life indicates that UK homeowners now have combined equity of over £740 billion . Equity release schemes can be extremely useful for many people in freeing up tax free cash from their home without having to move. And, unsurprisingly, they are becoming increasingly popular.
The growing popularity of equity release
According to figures from the Equity Release Council, the first 3 months of 2019 saw a new record of housing wealth unlocked by homeowners over 55. This follows a similar pattern to increases in the previous few years, with a total number of equity release transactions rising around 10% every year. And research from Legal & General Home Finance reckons that the equity release market is on track to reach over £4 billion by the end of 2021, with further increases expected in 2022. So use of these schemes is clearly becoming big business.
In fact this growth in the popularity of equity release schemes is larger than the increase in first-time buyer and remortgage activity.
However there are many different schemes and it is essential that you are both fully aware of the implications of equity release and that you make sure you get specialist, impartial and independent financial advice first. In particular you need to be aware of the impact of any equity release scheme you take out on any inheritance you leave when you pass away.
If you have any questions about equity release – we are here to help. From our four offices in Salisbury, Fordingbridge, Andover and Amesbury, our highly experienced property team regularly advise clients about these kind of schemes both locally throughout Wiltshire, Hampshire, Dorset and Somerset – and nationwide.
Got a question about equity release? Call our specialist solicitors on FREEPHONE 0800 1404544 or one of our 4 local office numbers for free initial phone advice – and a free no strings attached fee quote.
What is equity release?
Equity is the difference between any mortgage secured on your house and its current market value – effectively the capital you have tied up in your property. An equity release scheme allows you to free up some or all of that cash whilst remaining living in your house. Given that for many people, their home is often their largest financial asset, this can of course have a substantial effect on the value of the estate you leave to your loved ones when you pass on.
However the good news is that if you want to raise money using equity release, you won’t have to pay any tax on the money released.
Is equity release right for you?
There are many reasons why people take out these type of mortgages and these often include:
- To provide an increased income in retirement
- Helping other family members – e.g. getting onto the property ladder
- Repaying debts
- Providing care in the home – if you wish to avoid going into a nursing home but still need help at home
- Repairs or home improvements
However equity release is not right for everyone. In addition these schemes vary considerably and taking out the wrong one for you can prove very expensive.
Are there different types of types of equity release?
Yes, with the growth in the equity release market, an increasing number of different products are being released onto the market.
In general, you can choose to receive your money in two ways;
- As a single tax free cash lump sum, OR
- In a series of withdrawals from a reserve as and when needed.
Here, for example, are two of the most common examples of equity release schemes;
Home Reversion Schemes
- You sell a % of your property to the lender – which can be anywhere between 30% and 100%
- The lender let you have a % of that share in a tax free lump sum
- No additional interest is payable
- The lender gets paid their share when your property is finally sold
Lifetime Mortgage Plans
- There are numerous different types of this kind of scheme including roll-up and serviceable plans
- You can withdraw the cash in a single lump sum or in smaller chunks as you choose –up to a limit pre-agreed with the lender
- You have the choice to pay interest and/or to repay some part of the capital you have borrowed
What is the process?
With most schemes, the first step is for the scheme provider to get a valuation of your home from a qualified surveyor.
The amount available to you under equity release should then be confirmed, and you will get a formal Offer Letter.
You will then need to see a property solicitor – and it’s always important that you use someone who is had plenty of experience of equity release. Your solicitor’s role at this stage is to make absolutely sure you understand what you’re doing – and in particular that you fully understand the legal effect of the contract you are being asked to sign. In particular your solicitor will want to make sure that you aren’t under any pressure to agree to a scheme that you’re not really happy with.
Your solicitor then signed the acceptance form confirming that all the essential points have been explained to you.
The scheme provider will then carry out some legal checks on your ownership of the property – when that’s done, the cash is transferred to your solicitor who will release it to you.
What can I use my released capital for?
There really are no restrictions – it’s your money. However amongst the most popular uses of funds raised by equity release schemes are the following;
- Clearing bills and debts
- Gifting money to your children or grandchildren [remember – there could be inheritance tax implications so you might want to take specialist advice from one of our private client team]
- Home improvements
- Paying for nursing care at home
How our equity release solicitors can help you
Our conveyancing solicitors can provide you with the clear and practical advice you need if you are thinking about taking on an equity release mortgage. Our team will go through the terms and conditions of the mortgage with you before you sign, to ensure that the particular scheme is right for you.
However solicitors are not able to give you financial advice – if you do require financial advice, we work closely with a number of local independent financial advisers who will be able to help you. We are happy to introduce you to them.
How much will equity release cost me in legal fees?
Our solicitors are able to advise you of the impact of any scheme on the basis of a fixed fee – so you know in advance exactly what you have to pay in legal fees.