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The Coronavirus crisis has sparked an interest in the equity release market as clients reconsider the impact on their financial plans and alternatives to creating cashflow into retirement and the years ahead. People who have found themselves with employment uncertainty or the threat of businesses collapsing they are looking to create some way of releasing available finances to offer some foreseeable stability.
Equity release enables homeowners aged 55+ to draw a lump sum or regular sums from the value of their home, while remaining in their homes and without having to make monthly repayments.
The market for equity release has grown considerably in recent years with £3.94 billion released from bricks and mortar over the course of 2018, according to the Equity Release Council. This has been fuelled by product innovation and flexibilities such as options to repay early when downsizing to a smaller property, ring-fencing a guaranteed minimum inheritance, and making interest or capital repayments to minimise the cost or reduce the loan size over time.
There are three ways to release equity from your home: downsizing, a Home Reversion Plan, or taking out a Lifetime Mortgage:
There are many reasons why people take out an equity release plan:
To be eligible for equity release you will need to be aged 55 or over, and have a home in the UK worth at least £70,000.
How much you can borrow depends on the value of your home and the age of the youngest applicant. Maximum Loan to Values (LTV) will vary from one lender to the next and is generally between 20% and 50% of your property’s value. The older you are, the more you can borrow.
If you don’t need all the money you release, you can opt for a ‘drawdown’ option. This means you only release the money you need from your home when you need it. For example, you could release £100,000 but only drawdown £20,000. The benefit is you’d have the £80,000 available to take out without having to go through the application process, and interest is only charged on the amount you release.
Yes, you can take the mortgage with you to your next home although this could be subject to lender criteria.
A common worry with equity release is the fear of repossession, but this will never happen with any plan approved by the Equity Release Council, thanks to built-in safeguards that protect you from ever owing more than you can repay.
The property is usually sold once the last remaining borrower has died. The family will have 12 months to make the sale or pay off the loan themselves and keep the house.
Would you like more help? Our team of experienced independent financial advisers can guide you through the full range of mortgage and equity release options available to you and advise on the making the right decisions for you, taking into consideration your wider financial plan.
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