Maria Richards, Consultant Residential Property Solicitor at Setfords, explains the benefits of Equity Release.
Historically, the common form of equity release was a home revision plan. This is where the home own sold their property to a private company (a ‘reversion company’) or a group of individuals and in return received a cash lump sum and occasional income with this with the benefit of living in the property rent free or for a nominal monthly rent. The reversion company would receive the proceeds of sale following the death of the occupant or if the occupant moved into alternative accommodation. There were downsides in that the companies were not heavily regulated, lump sum could impact on benefits such as pension credit and any other means tested state benefits and you are not paid the full market rate for the portion of your home you sell. Often there was nothing left for the beneficiaries to inherit and the companies involved did not have a good relationship with personal representatives who were distributing the estate.
What are the changes?
An alternative to the Home Reversion Plan is a Lifetime Mortgage. Lifetime mortgages are available to homeowners over the age of 55 and provide them with a lump sum, or regular income by way of drawing down further instalments, assisting them to enjoy their retirement.
Over the past 10 years the alternative form of equity release known as lifetime mortgages have become increasingly more popular with a wide range of products, flexibility and most importantly transparency through strict regulation via the Equity Release Council. The Equity Release Council continue to update their competency standards in line with changes in society and a fifth standard is coming into force on the 28th March 2022 where customers will be guaranteed the right to make penalty free partial repayments of their loans meaning they will not incur any early repayment fees if they pay off part of their loan early.
Over 76,000 new and returning customers make use of equity release in 2021.
The flexibility of plans is increasing:
Traditionally, equity release was only available over your main property which you had to live in. However, there are now lenders who will provide equity release over Buy to Let Properties or Second/Holiday Home Plans.
There will be criteria to be met, and lenders will have their own definition of what constitutes a second home. For example, Canada Life states that a second home must be for the whole occupancy of the owner or not let out for any more than 4 weeks consecutively with a minimum of 3 weeks being used by the homeowner.
Obtaining Correct Advice
It is important that as a homeowner you are comfortable with the decision that you are making.
The first port of call is usually a Financial Advisor who will be able to explore your options and whether or not this is the best route for you.
Once you decide to proceed with a lifetime mortgage you will then need a solicitor to provide legal advice on how this affects your title deeds and what your obligations are by signing the Mortgage Deed. We will also discuss with you any implications this can have on your estate when you die, what family and professionals (such as executors) you should consult before taking out.
Many solicitors steer away from Equity Release, and this may be due to their experience or business plan. However, there are solicitors and conveyancers who are able to provide this specialist advice.
We have several lawyers and consultants who specialise in equity release schemes and can assist you throughout the procedure whilst ensuring that the Equity Release Council’s Standards and Code of Conduct are fully complied with.
We will not proceed to completion unless you are fully comfortable with the product and your choice.
Is a face to face meeting required?
The Equity Release Council insist that advice is given face to face. These rules were relaxed through Covid-19 to conduct the meeting via video call and although these special measures are still in place, where possible a face-to-face meeting should be carried out and it may be that the video call option is removed in the future and this continues to be an ongoing review of the Equity Release Council. If you select a solicitor that is not close to you, they will endeavour to find a local solicitor to witness your signatures, however this can prove difficult, and many firms will refuse to sign.
For more information about Equity Release contact Setfords today