Equity release works very well for some people but may be inappropriate for others.
For this reason, it is vitally important only to deal with a regulated financial services firm and to ensure that your family knows about and is comfortable with this solution.
At Financial Solutions Wales, we will check whether raising cash through equity release could affect any means-tested benefit entitlement and be frank with you about the effect on what is left in your Will.
Other issues to consider before choosing equity release include downsizing – selling your home and buying somewhere smaller with only part of the proceeds. However, many people prefer to stay in familiar surroundings and, if your home needs money spent on essential repairs, your local authority may be able to assist with that.
One form of equity release, not available to anyone under the age of 55, is often known as a ‘lifetime mortgage’.
The provider, which may be one of the major insurers or another lender, advances to you a lump sum based on an agreed percentage of the current value of your home.
The lump sum and the necessary costs of setting up the arrangement are a charge against your property and will therefore reduce the amount available to your beneficiaries after your death. A house of standard construction is normally acceptable security for a lifetime mortgage, but some flats and non-standard properties may not be accepted.
The percentage of value that you may borrow will depend on factors that include your age (the younger of a couple), since interest is usually ‘rolled up’; that is added to the loan amount until eventual repayment rather than paid to the lender month by month. Once the mortgage has been agreed and the approvals and paperwork completed, the money will be advanced.
Home Reversion plans
The other main form of equity release is called a ‘home reversion plan’, for which the minimum age is usually 65.
This works in a different way to the lifetime mortgage and the most important difference is that with a home reversion plan you relinquish ownership of all or a proportion of your home. The provider buys the agreed percentage of your home, up to 100%, usually on the basis that you may continue living there rent-free for as long as you want.
An important issue to grasp is that, because of your right to live in the property rent-free until the plan provider can sell it (when you die or enter long-term residential care), the price you will receive for your home may seem a modest percentage of its market value. The older you are and therefore the lower your life expectancy, the higher the likely percentage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The Financial Services Authority does not regulate some forms of mortgages.
There will be a fee for advice on Lifetime Mortgages. Our typical fee is £500 for arranging the Lifetime Mortgage, with £250 payable at outset and the remaining £250 payable on completion. This is in addition to any commission we may receive from the company.
As we are independent you have the choice whether to pay a fee only for the lifetime mortgage advice we provide. A fee of £995 for arranging the Lifetime Mortgage may be payable at the outset. If you choose this option we will refund to you any commission we earn from the company.