As you enter later life, you made want to consider releasing some of the equity in your home to provide you with a lump sum to fund a project or to be invested to generate an income. This is a big decision to make so it is important to think it through, find out as much as you can, and get some advice from a financial adviser.
Equity release is typically only available to you if you are over 55 and own your own home outright (without a mortgage or other loan secured on it), and it allows you to release some of the money tied up in your home without you having to move. Equity release can be helpful as once you’ve retired, it’s not always easy to borrow money or put savings away when you have no regular income coming in from employment. The money can help to pay for long term care bills, a new car or perhaps a family holiday to Disneyland!
How does it work?
There are two types of equity schemes; lifetime mortgages and home reversion. The amount you can borrow depends on your age and the value of your home, and typically the older you are the more you can borrow.
This area can be a tricky one to navigate and as a result, the SHIP Standards Board (now part of the Equity Release Council) has set a code of conduct to help you get peace of mind over the transaction. SHIP stands for Safe Home Income Plans and those who sign up to it have to undertake that you have the right for you to live in your property for life, and the freedom to move to an alternative property without penalties, among other rights like being able to choose your own solicitor to review the documents, which must be ‘fair, simple and complete’. The standards also mean that ‘negative equity’ cannot be applied – so even if your house should decrease in value, your estate will not be required to repay any additional debt after your death. When you speak to your adviser, make sure that the proposal that you are being offered does carry the Equity Release Council logo – which means that it complies with these standards.
Choosing to release equity from your home is a big decision so it’s important to talk through it with your family and get advice to see if you have any alternative options. For example, if you’re struggling to cope with your property, you might want to consider moving to a small home instead? An indepedent financial adviser will be able to explore all the options available to you and give you the advice that will help find the right solution for you. You can find an IFA in your local area here.
Questions you might like to ask a financial adviser …
- How much of my home would I still own?
- What scheme would suit me better, home reversion or a lifetime mortgage?
- Are there other ways I could access money, without using equity release?
- Will I be repaying my loan, or will it come out of my estate when I die?