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With equity release, homeowners can tap into the value of the property to ensure they and their family are comfortable, or to save on inheritance tax, without having to move home or give up ownership.
Many find themselves asset rich but cash poor after years of rising house prices, so the option of tapping into housing wealth as a source of funding is particularly attractive. Using an equity release product can unlock many benefits in retirement but is also a good way of transferring wealth between generations and paying for the luxuries in life without actually having to move home.
Equity release is a particularly effective solution for homeowners who are approaching the end of an interest-only mortgage and do not have any other means to repay the capital on the loan. (NB Where homeowners are able to continue to service the interest from income, a Retirement Interest Only mortgage, so called RIOs, may also be a possible alternative but are not considered further herein).
Other Ascot Lloyd clients have used the funds from equity release to help get their children on to the property ladder or to enable the purchase of a second home.
They have also put the proceeds away in a trust as part of inheritance tax planning, meaning there will be no delay in their family accessing money when it comes to paying for arrangements.
Equity release schemes previously generated negative publicity when people bought into unregulated schemes in the late 80s and early 90s only to face spiralling debt and negative equity due to falling house prices and variable interest rates.
Thankfully the industry has evolved from those days, with the launch of new and more flexible products as well as robust safeguards for homeowners under the supervision of an industry trade body, the Equity Release Council, all closely regulated by the Financial Conduct Authority.
These changes make equity release a safe and attractive opportunity for many people today. You’ll never owe more than what your property is worth when it’s sold, while ‘security of tenure’ protects your right to stay in your home for life.
If you opt for modern-day lifetime mortgages, you can have an ‘inheritance protection guarantee’ built in which allows a fixed percentage of the property value to remain on the subsequent sale of the property. The higher the percentage inheritance guarantee chosen, the more it reduces the maximum loan amount available from the start of the plan.
In 2022 the Equity Release Council also added the ability to make partial repayments penalty free to the standard features on the schemes it recognises. This means equity release customers can reduce their borrowing if their circumstances change.
The minimum age for taking an equity release product is 55 but typically people tend to be older before considering it. It is up to the customer how much of the loan they repay, as proceeds from the sale of their house will be used to cover the debt and any accrued interest on their passing or moving into care.
If you’re aged 55, the usual loan-to-value limit is 21% because you’re expected to live for longer, whereas the percentage rises to as much as 39% at age 73 and 52% at 90 years.
The tight loan-to-value boundaries help to safeguard inheritances for loved ones, whilst the products are portable so there’s still the freedom to move to another property if you so wish.
The basic types of lifetime mortgages we offer at Ascot Lloyd are drawdown lifetime mortgages and lump sum lifetime mortgages.
A drawdown lifetime mortgage enables you to release some of the money you have tied up in your home by providing you with an initial lump sum, along with an approved 'cash reserve' you can draw on as and when you need it. Interest is only charged on the amount you’ve actually drawn so the interest that accumulates is likely to be less than if you had taken all the money at once.
Lump sum lifetime mortgages allow you to release money tied up in your home in one cash lump sum. While drawdown lifetime mortgages might offer more flexibility, some people may choose a lump sum lifetime mortgage because they have a specific use for the money in mind or only want to release a certain amount. Some lenders are also able to consider taking any health and lifestyle conditions you have into consideration which may result in the potential to borrow an even higher amount. Interest starts to accrue on the equity released immediately, and whilst some arrangements do allow for the interest to be paid, avoiding the debt compounding, many people prefer to roll up the interest, which ultimately further reduces the value to be realised when the property is sold.
Ascot Lloyd offers independent advice on all aspects of equity release and has semi-exclusive access to some of the lowest equity release interest rates. Book a free call back to learn more.
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Important Information
Equity release isn’t right for everybody and every home, so it depends on you and your circumstances.
This communication is for information purposes only and is based on our understanding of current UK tax legislation and HM Revenue and Customs (“HMRC”). Levels and bases of taxation and reliefs are subject to change and their value to you will depend on your personal circumstances. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
The FCA does not regulate inheritance tax planning.
This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document.
Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Ascot Lloyd as a result of using different assumptions and criteria.
This communication is issued by Capital Professional Limited, trading as Ascot Lloyd. Ground Floor Reading Bridge House, George Street, Reading, England, RG1 8LS. Capital Professional Limited is registered in England and Wales (number 07584487) and is authorised and regulated by the Financial Conduct Authority (FRN: 578614).