Equity Release – the myths dispelled
Homeowners aged over 55 who purchased their property a few years ago are likely to find that it’s risen a lot in value. If they don’t want to downsize to release the cash, equity release is a way of giving them access to their money while they continue to live in their home.
A growing trend
According to figures from the Equity Release Council, 440,000 homeowners have accessed well over £24bn of housing wealth through its members since 1991. The trend is increasing, with the amount of money released expected to be around £4bn by the end of this year. In the third quarter, over 12,000 new plans were taken out, making equity release the fastest growing area of the mortgage market.
Equity release has come a long way since its regulation in 2007, and can play a crucial role in retirement funding. The Equity Release Council has put in place product standards which enable thousands of home owners every year to safely access the money, the ‘equity’, tied up in their homes. However, misconceptions remain.
Myth – Plans aren’t regulated
All equity release schemes are regulated by the Financial Services Authority. Advisers must be qualified by examination, and everyone taking out a plan must receive independent legal advice. The industry body, Equity Release Council, requires plans to have the following features:
- A no negative equity guarantee – this ensures that the mortgage debt never exceeds the value of the property
- The ability to repay the loan at any time (however, early repayment charges may apply)
- The freedom to move property and transfer the scheme at the same time.
Myth: It will mean I’ve nothing left to leave to my family
There are plans available that allow you to protect a portion of your equity as an inheritance for your family. However, it’s becoming increasingly popular for people to use equity release to help their family now rather than later, perhaps by giving them money to get them on to the housing ladder. In addition, by releasing equity, the value of your estate will be reduced, which means that its liability for inheritance tax could also be reduced.
Myth: You can’t release equity if you still have a mortgage
False. Releasing equity to repay an existing mortgage has become one of the most popular uses of the cash raised. Once the mortgage debt is cleared, the rest of the money can be used for whatever purpose you choose.
Myth: My name will no longer be on the deeds
The deeds remain in your name, and you have the right to remain in the property for as long as you live.
Myth: My partner will be homeless if I go into long-term care
If you have taken out an equity release plan as a couple, the plan will continue as long as one of you remains in the home. Your plan will generally be unaffected if one of you moves into long-term care. If you both move into care, then in most cases the plan will come to an end and the property will be sold.
Myth: It’s all too complicated
Whilst it’s true that equity release is a complex product, we help clients understand the nature of the contract they are entering into and point out all the important features they need to be aware of. Taking independent legal advice is mandatory, and we are always on hand to explain the technicalities or answer any queries you may have.
How we can help
Equity release is a valuable tool for raising money and can help bolster retirement income, pay for home improvements or provide cash to pass on to other family members. As it will have an impact on the amount of inheritance you leave to your family, our advice is always to talk it over with them before going ahead.
If you’d like to know more about how our equity release service could provide the legal advice you need, then please do get in contact. You’ll find us experienced, knowledgeable and approachable. Debbie Barnett, an Associate in our Residential Property team, can be contacted on 0203 871 0079, or you can email Debbie