What is an Equity Release Scheme?
Usually, the phrase 'Equity Release' is used when referring to either a 'Home Reversion Scheme' or a 'Lifetime Mortgage'. There are other schemes available such as 'Home Income Plans', 'Shared Appreciation Mortgages' and 'Protected Appreciation Mortgages' but these are uncommon and so are not considered in any detail in this guide. All Equity Release Schemes will generally share common features such as:
- A lower age limit - that is, you must be at least 55 (but usually age 60 to 65) before you can apply
- You will have the right to remain in your own home for life
- You will receive a cash lump sum or an income for life, or a combination of these, from the Equity Release company
- No repayments towards the equity released need be made until your home is sold (that is, in the event of your death or moving into long-term care)
- The amount owed to the Equity Release company will never exceed the value of your home (which is commonly called the 'no negative equity guarantee'), although this provision needs to be specifically confirmed with the company.
Are there any alternatives to Equity Release?
Consider moving to a cheaper property - if you sold your property for £150,000 and bought a replacement property for £100,000 then you have released capital of £50,000 (less the costs involved with moving) to be spent without restriction, and still retaining a full interest in your home to pass to your chosen beneficiaries.
Use existing savings - rather than using part of your home to provide an income, spend capital savings (where available).
Approach family members - if you want to release £30,000 from your property and have 3 children, might it be possible for your children to pay you £10,000 each and acquire an interest in your home (by way of mortgage or co-ownership)? If this is a viable option, you should still seek legal advice before proceeding down this route.
If you require additional income, apply for all State Benefits to which you may be entitled (such as Attendance Allowance, Pension Credit, Council Tax benefit etc). Before proceeding any further, we would strongly advise that claims for these benefits be made by you. On the other hand, if you already receive such benefits then be aware that taking out an Equity Release Scheme may affect your entitlement.
Contact Age Concern (www.ageconcern.org.uk ; telephone 0800 00 99 66) who produce a series of Factsheets on Equity Release Schemes, and in particular their Factsheet number 13 provides information on grants which may be available to provide funds to improve your home, although such grants would not assist those wishing to release capital simply to have cash in the bank.
Contact the Home Improvement Trust (www.hitrust.org ; telephone 0115 934 9511) which is a not-for-profit organisation which helps arrange low cost advances for those looking to fund works on their home, but again this would not assist those wishing to release capital to have cash in the bank. The Trust will also provide information on Government grants (if available) and welfare benefits so that an Equity Release Scheme need not be considered unless necessary.
Consider taking out an ordinary personal loan or interest-only mortgage - of course, monthly payments will need to be made to repay these loans; and these products usually involve variable rates of interest so be certain that you would still be able to afford the monthly payments if interest rates increased significantly.
Click here to download our "equity release schemes" guide
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