Equity release can be a handy tool for homeowners over the age of 55 who are looking to top up their retirement income or cover ever-growing care costs. However, the landscape of such an option can often be difficult to navigate. Getting a solicitor’s tailored advice and expert guidance is a great way to ensure that you will be making the right decision.
In this article, we will be providing you with answers to some of the questions we often get asked by our clients regarding Equity Release.
- What does Equity Release mean?
- Will Equity Release affect my pension credit?
- Could I lose my house with Equity Release?
- Is Equity Release safe?
- What are the criteria for Equity Release?
- Is Equity Release an option with shared ownership?
- Can I benefit from Equity Release on a jointly owned property?
- Can I release equity to pay off debt?
- Can I pay off Equity Release early?
- Can I benefit from Equity Release on a leasehold property?
- Can I use Equity Release to buy another house?
- Can I sell my house if I have Equity Release?
- Do you pay tax on Equity Release?
- Can I release equity on my house under 55?
- How long does it take to release equity?
- Can I release equity if I have a mortgage?
- How much equity can I take out?
- What impact does Equity Release have on your estate?
What does Equity Release mean?
Equity Release is a financial option allowing homeowners to release funds from their property without selling their homes or even moving out. It provides them with ownership and access to the equity of their properties, even if they have lifetime mortgages.
Will Equity Release affect my pension credit?
Yes, any means-tested benefits, including pension credit, council tax benefit, and certain health benefits, are affected by Equity Release. You will need to check what the financial limits are for your particular situation.
Could I lose my house with Equity Release?
No, homeowners have security of tenure if they choose to pursue Equity Release. This means that, unless you breach any of the terms of your mortgage, you cannot be evicted from your home. Furthermore, there is a no negative equity guarantee in place, which simply means that should your property fall below the amount owed (capital and interest), you (or your beneficiaries) would not be held responsible for making up the balance.
Is Equity Release safe?
There are some potential risks and drawbacks to Equity Release which must be understood. First and foremost, the interest on such an option is high and compounded, and if there are other avenues to consider, it would be advisable to do so. That being said, Equity Release is very well-regulated by the Financial Conduct Authority, and there are reliable protections for clients in place. Furthermore, homeowners are not required to make any payments during their lifetime, as the mortgage is to be paid back upon first death (in the case of a single applicant) or second death (where there are two owners), or upon the eventuality that the last owner goes into long-term care or sheltered accommodation.
What are the criteria for Equity Release?
In order to be eligible for Equity Release, you must be over the age of 55, own your own home worth £70,000 (some lenders stipulate £75,000) or more, and live in England or Wales. A maximum of two owners is allowed upon each application, and both names of said owners must be listed on the Proprietorship Register at HM Land Registry.
If there is only one name listed, the second applicant must be added. The same applies if there are two owners listed, but the application is in the name of only one owner (such as in the case of divorce proceedings).
Is Equity Release an option with shared ownership?
Equity Release is only available if you own 100% of the property, meaning that anybody who does not own all of their property (with or without a mortgage which will need to be paid off with the proceeds of the Equity Release) will not qualify. However, it may be possible for two individuals who own a percentage of the same property to obtain Equity Release together, provided they fulfil the criteria for applying.
It is also worth mentioning that only a maximum of two owners can make an application for a lifetime mortgage. A property split equally between three or more individuals would not be eligible for Equity Release.
Can I benefit from Equity Release on a jointly owned property?
Yes, as long as you meet the eligibility requirements mentioned above, and there is a maximum of two owners on the property.
Can I release equity to pay off debt?
Yes, you can use Equity Release to pay off debt, and it is indeed a viable option for homeowners struggling to keep up with other repayments. However, financial advisers will make a final assessment dependent on the type of debt, and the high interest rates that might be incurred should be considered.
Can I pay off Equity Release early?
Yes, it is possible to pay off Equity Release early. However, it is important to be aware that doing so may well result in an early repayment charge. This charge can be quite steep, and the exact amount can vary from year to year.
Can I benefit from Equity Release on a leasehold property?
Yes, if you own a leasehold property, it is still possible to benefit from equity release. However, the process can be more complicated than with a freehold property, and as a result, legal fees are likely to be higher.
Can I use Equity Release to buy another house?
Yes, it is possible to release equity in your current home to buy a second home. Lenders will have criteria that you must comply with, and you will have associated costs of buying a property, such as solicitor’s fees.
Can I sell my house if I have Equity Release?
Yes, it is still possible to sell your house if you have Equity Release on your property. However, you will need to redeem the mortgage associated with the Equity Release, which will likely incur the early repayment charge previously discussed. Alternatively, you may be able to transfer the mortgage to another property. However, this may be subject to further criteria set by the lender.
Do you pay tax on Equity Release?
No, you are not required to pay tax on Equity Release. However, you should consider its effect on means-tested benefits, as stated above.
Can I release equity from my house under 55?
No, in order to be eligible for Equity Release, you must be at least 55 years of age.
How long does it take to release equity?
The time it takes to release equity varies and depends on several factors, including property ownership, legal considerations, and the case’s complexity. For example, removing or adding a partner from the property register, going through a divorce, having a property subject to a trust, or acting under a Lasting Power of Attorney can all affect the process.
Other factors, such as associated sales or purchases or the involvement of new build properties, can also increase the time needed. Suffice to say, the process may take several weeks, so it is important to be prepared for any delays that might take place.
Can I release equity if I have a mortgage?
Yes, it is possible to release equity if you have a mortgage. However, it is important to note that the existing mortgage charge must be paid off using the funds that you will be releasing. Any remaining balance after deducting fees and disbursements will then be paid to you.
How much equity can I take out?
The amount of equity you can take out depends on the value of your property, which will be confirmed by an independent surveyor appointed by the lender. However, an independent financial adviser should be able to provide you with guidance on this matter.
What Impact does Equity Release have on your estate?
This depends on whether you have dependents or family you wish to leave your property to. If you have dependents or family, then it will reduce the estate for the purpose of inheritance. But, you should consider your personal lifestyle. If you do not have any dependents or family, Equity Release is more likely to be a good option.
In summary, Equity Release can provide a viable solution for homeowners seeking to supplement their retirement income or cover increasing care costs. However, given the complexity of this option, seeking advice from a solicitor is highly recommended. By taking this step, you can make an informed decision, and ensure that your financial interests, and those of your family, are protected.
Speak to an Equity Release Solicitor on 0330 058 4011Contact us