The Equity Release Council announced recently that there was a record number of homeowners in the last quarter of 2017 who entered into Lifetime Mortgages also known as Equity Releases. As a result, the housing wealth exceeds £3 billion for the first time in one single year.
But what exactly is a Lifetime Mortgage / Equity Release and what are the advantages / disadvantages?
There may be many reasons why retiring homeowners want to release some of the equity in their property. It could be that they want a nest egg to be able to enjoy their retirement and go on regular holidays, fulfill a lifetime ambition or landscape the garden. Some may have a mortgage outstanding with no cash to pay it and they really don’t want to move. A Lifetime Mortgage may be a suitable solution to some people.
The Lifetime Mortgage is generally available to homeowners aged 55 or over and generally, you can borrow up to 60% of the value of your house. The money is released to you in a large lump sum or in some cases smaller amounts over a period of time and you can do anything you want to with it. Of course, interest is charged on the amount you borrow but it’s added to the loan. The following are the normal terms of a Lifetime Mortgage:
- You retain ownership of your house
- You can decide whether you want to make monthly payments or not pay anything at all.
- You don’t have to pay any of the Lifetime Mortgage back until you either sell your house (e.g. the last one of you has to go into care) or when you die. If you are a couple it does not have to be paid back until the last one of you dies
- In most cases, you can move house and transfer the Lifetime Mortgage to your new home.
- You cannot go into negativity equity – so even if your house value fell below the loan amount you (or your estate) will not have to pay the deficit.
- If the value of your house increases, you/your beneficiaries will still reap the benefit.
A disadvantage is that of course the equity in your house is reduced so there will be less money for any beneficiaries named in your Will. They could also affect your entitlement to state benefits.
Another option is a home reversion plan. The difference between this and the Lifetime Mortgage is that with home reversion plans, you are selling a share in your house but no interest is added. We do recommend that you see a financial advisor though to determine whether an equitable release is suitable and which product is best for you.
You can use any solicitor of your choice in Lifetime Mortgages. Our solicitors Susanne Grimwade, Andrea Godfrey & Sarah Rankin are all members of the Equity Release Council and will ensure you fully understand the consequences of taking out an Equity Release and guide you all the way. To speak to one of our solicitors, call 01206 700113 or email contact@fjg.co.uk.