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The ins and outs of equity release

Struggling for cash this Christmas? Is it the same story every year and you’re fed up with always feeling overstretched? Heard about equity release and wondering if it’s a good idea?

If you’re over 55, own your own home, and would like a more comfortable lifestyle, then yes, it could be. But whilst rates are looking better than they have done for years, equity release doesn’t come without risk.

Here the team of expert property solicitors at GD Legal highlight some of the key points you need to be aware of before making your decision.

 

What is equity release?

The exact rules around equity release will depend on your provider, but it’s usually only open to people over the age of 55.

It is a way of releasing some of the value of your home and turning it into cash.

There are a number of ways you can do this:

  1. Take the money as a lump sum
  2. Receive the money as a series of smaller payments

It’s not essential to have a fully paid-up mortgage to do this, and this money doesn’t need to be repaid unless you die – or move out of the property and into long-term care.

 

What types of equity release are there?

There are two main types of equity release. The most common of these is a lifetime mortgage, which is a loan secured against your home. You remain the property owner and continue to live there.

The second is what’s known as a home reversion scheme. This option is only open to people over the age of 60. In this instance, you sell all, or part, of your property to a provider for less than the current market rate. You continue to live in the property but as a tenant – rent-free.

 

How much does equity release cost?

You might be considering equity release to get your hands on some money, but it’s important to realise that it doesn’t come for free!

Lifetime mortgage rates are the lowest they have been for years, but they are still higher than most standard mortgages.

On top of the interest you incur as part of a lifetime mortgage, there are additional fees that will need paying straight away. These are for services like valuations, surveyors, and property solicitors. They could set you back anywhere between £1500 and £3000.

 

Things to be aware of

  • Speak to a financial advisor

Whilst this is yet another expense, it’s money well spent if it helps you to make the most financially sound decision. Equity release is a complicated matter, and getting an outside opinion from someone who can assess your financial situation as a whole will help to identify whether equity release is right for you.

·       Use a highly recommended property solicitor

Equity release is complicated enough. so the last thing you need is to work with property solicitors who charge over the odds and under-deliver. Instead, be sure to check reviews and ask around for recommendations, ensuring you work with a firm that will not only offer you a fair and competitive price for their service, but who will keep you fully updated and informed – without any jargon to confuse matters – every step of the way.

·       It can affect your benefits

Whilst any money released is effectively yours either way, having cash in the bank rather than a property can impact the benefits you’re entitled to. So take time to check out where you’d stand first.

·       Take it slowly

This is true in every sense. Don’t rush into equity release without really doing your homework. If you do decide it’s right for you, you don’t have to take all the money in one go. The sooner the money is taken, the longer the interest has to build up. So if you can, borrow as you go along – as and when you need it.

 

Other options

For many people, regardless of age, equity release isn’t the best option, but if you’re under the age of 55 then it’s not even a possibility you can consider. So everyone should be aware of the other possibilities out there.

Downsizing

Equity release doesn’t come without its pitfalls and certainly isn’t a move to take lightly.

It’s important to weigh up all your options and consider your finances carefully. In many instances, selling your property and downsizing to a smaller home is the safest and most sensible option. This frees up cash, will reduce long term costs (maintenance, heating, council tax etc), and be will the most secure and stable route.

But it’s not always that simple. Let’s not forget that ‘home’ is where memories have been made, and lives built. With friends, neighbours, or family nearby, moving out of your ‘forever’ home won’t be for everyone.

Remortgaging

Remortgaging can be a good way of reducing your mortgage payments each month, and is definitely worth looking into for those under 55.

If you’re over that threshold, don’t make the mistake of assuming your only option is equity release. A number of mortgage providers have raised the age restrictions on applying for a mortgage, so you could still be eligible.

 

Talk to the team

Think equity release is right for you? Decided to downsize your home instead? Either way, you need a trusted and dependable property solicitor by your side.

At GD Legal, we’ve years of experience in all property-related legal matters, and our team of professionals is ready to help guide and support you.

Access a free quote right now, or get in touch to find out more about our services.