Equity release is a way of getting cash from the value of your home without having to move out of it. The equity (what you might call the value) you have in your home is its open market value, less any outstanding mortgage or other debt secured against it.
Equity release provides homeowners, typically over the age of 55 years old, with the ability to secure a cash lump sum, regular income or both from the value of your home. You will continue to live in your home and be responsible for maintaing your home.
A recent Equity Release Market Monitor study showed that in the first nine months of last year, more than 60 per cent of people using equity release used some of the cash for home and garden improvements. This is a significant increase on the same period a year earlier, when 43% of customers used the cash in this way.
There are two main types of equity release scheme in operation in the UK. They are “lifetime mortgages” and “home reversions”. You may also come across so-called “sale-and-rent-back” schemes, however these are not a type of equity release scheme.
What is a “lifetime mortgage”?
A lifetime mortgage means:
- Taking out a loan that is secured on your home (i.e. the lender knows they can get their money back by selling your home);
- Continuing to own your home, although you will have to pay back the mortage on it;
- Repaying the mortgage from the proceeds of the sale of your home when you die, or if you move out of it.
What is a “home reversion”?
A home reversion means:
- Selling all or part of your home to a reversion company or an individual;
- You no longer own your home, but continue to live there as a tenant of the reversion company or individual.
- The home is sold when you die or if you move out of it.
What can I use the money for?
You can use the money for any purpose, however you should think carefully about the best use of the money. Home and garden improvements can be made to further increase the value of your property, or alternatively might be made to reduce your energy bill costs through better insulation, double glazing or the installation of solar panels and other green or renewable energy technology.
Is it right for me?
Equity release schemes can be helpful, but they are not suitable for everyone. We recommend you seek independent advice before proceeding with equity release to make sure that it’s the right decision for you and that you get the best possible deal for your circumstances.
You can find advisers online or on the high street, but make sure that they are FSA (Financial Services Authority) regulated, or are agents of regulated firms. This ensures that they meet certain standards for providing advice to allow you to make an informed choice.