As Scotland’s population ages and more older people own their own homes, many decide to unlock the value in their properties to provide cash in later years. Some people do that through equity release.
What is Equity Release?
Your house is probably the most valuable asset you own. This is especially true if you have repaid your mortgage or if the mortgage over your house is very small. Balanced against that, as you grow older, your income may be reducing and sometimes, you might wish to unlock some of the value that is locked up in your house.
To do that, you can borrow against the value of your home and, in some cases, you will not need to make any regular payments.
The process of unlocking that value is known as equity release.
How do equity release schemes work?
When you own your house, an equity release provider will provide you a percentage of the value of the house in cash. Most schemes do not require you to pay anything. The amount of the loan and interest simply add up over time until you eventually pass away. If you are a couple who jointly own the property, the equity release company will be repaid after the last one of you passes away.
Are equity release schemes regulated?
Equity release schemes are regulated by the Financial Conduct Authority. In addition, equity release scheme providers are registered with the Equity Release Council (ERC). ERC members provide a guarantee that you can continue to live in your home until the end of your days.
Moreover, there are some schemes that come with a “no negative equity” guarantee which ensure that the total sum provided plus interest never exceeds the value of your home.
Are there different types of equity release schemes?
There are, of course, different types of equity release schemes. The two main options are either a Lifetime Mortgage or a Home Reversion Plan.
Lifetime Mortgage Scheme
When you use a Lifetime Mortgage scheme, you retain ownership of the house. With these schemes, you can either allow the interest to accrue against the property or you can make regular payments. You and your partner can remain in your home until the last one of you dies.
Home Reversion Plan
The other main type of scheme is the Home Reversion Plan. In these types of plans, you transfer all or part of your property to the equity release provider in exchange for a cash sum or regular payments and receive a lifetime lease of the property. The lifetime lease guarantees that you can live in your property for the rest of your life with no interference from the equity release company.
There are variations within each of these schemes which are designed to give you the widest possible options.
As these are specialist schemes, it is important to speak with a qualified equity release expert. You will be able to find details of advisers and providers on the ERC website.
What if you want to move house?
There are usually provisions contained in the equity release schemes that allow you to move to a suitable alternative property. The general rule is that if the property you wish to move to can be sold on the open market, you will be able to move house and transfer your equity release scheme to your new home.
What can you do with the money you receive?
You can do anything you want with the money you receive. Some people take out an equity release loan to finance home improvements, others to go on holiday or to help family members get onto the property ladder. There are no restrictions on what you can do with the cash. It’s your money and you can do what you want with it.
How old do you need to be to qualify for equity release?
You must be 55 years of age or older to qualify for an equity release loan.
If you want to consider equity release, what are your next steps?
If you are thinking of taking out an equity release plan or know someone who might benefit from an equity release plan, then you need to find out as much as you can about your options.
Although Equity Release is a type of mortgage, a mortgage broker is unable to provide advice unless they hold a specialist Equity Release qualification. You need to find an independent adviser who holds this qualification and who specialises in this complex area. Organisations such as the Equity Release Council or Age UK are good places to start.
If you would like to discuss your options, please contact us.
This article is by Robert Allan
Robert Allan, Partner
Robert Allan graduated from the University of Strathclyde in 1980. Robert deals with all Residential and Commercial Conveyancing, specialising in leases for shops and office premises.
Tel: 01698 373365
Email: rha@pomphreyslaw.com
