Blogs Norfolk

Cash in the attic…. releasing equity in the family home

Written by Almary Green

Our friends at Almary Green take a look at the pro’s and cons of equity release to help you make an informed decision.

Equity Release (including Lifetime Mortgages) is a solution that seems to have become more popular in recent years. Many of us have the vast majority of our wealth invested in the bricks and mortar of our homes – and it’s not unusual for parents and elderly relatives to find themselves “asset rich and cash poor”.

There are lots of reasons why your relative might want to access money from this valuable asset. For many, they see it as a way of enhancing their lifestyle in retirement to allow for hobbies, holidays or home improvements.  Some will be considering a special one-off purchase such as a car, caravan or boat.   Others may be looking to settle outstanding debts such as mortgages.  Funeral prepayment plans are another regular reason for going down the Equity Release route.

Some homeowners may see Equity Release as a way of accessing capital to help family members while they are there to see the benefits, rather than leaving it to them in their will, but care should be taken if this is your objective as it can have Inheritance Tax planning implications and might affect your entitlement to support in the event of you needing long term care.

You can also use Equity Release to pay for care in your own home, but – because plans normally require you to be resident in the property – it cannot be used to pay for care in a residential care home.

However, this isn’t a route that should be followed without full consideration. It’s crucial that all the family understands the implications of any contract you or your relatives enter into.  The bottom line is that with an Equity Release arrangement the homeowner is effectively either borrowing against the value of the property or selling some or all of it to an Equity Release provider.  Clearly, this could have a huge impact on the inheritance he or she is leaving behind.

It’s important to remember that the outcome of most Equity Release arrangements must be the eventual repayment of the debt through the sale of the property – usually when the homeowner dies or decides to move house.

Advice about Equity Release is a highly regulated area and advisers will be very careful to ensure that anyone vulnerable is safeguarded properly. This will often mean that an adviser will want to ensure that all the family and/or legal advisers are up to speed with what is being proposed.  It also means that every time we write about the subject, we are required to include detailed warnings about risk and about the cost of such an arrangement – you’ll see these warnings at the bottom of this blog below.

It’s also important to be aware that there are costs involved in such an arrangement – usually interest on the amount you have released plus administration costs. The latter will normally be charged both by the adviser and by the insurance company that is providing the finance.  When you discuss the possibility of an Equity Release arrangement with an adviser, he or she will give you full details of all the costs involved, as well as how and when they must be paid.

We give details about the two types of contract you can arrange on our Age Space content page.  You  can generally take your released funds either as income or as a lump sum.

Equity release solutions using a lifetime mortgage offer what is known as a drawdown plan. This is a really flexible option where you are given an overall ‘drawdown facility’ (say £100,000 on a property worth £250,000) but you only draw money out as and when you require the funds, so you only pay interest on the amount you’ve actually drawn out.  You can then go back to the equity release provider when you need more.  This solution saves interest and is convenient, so is the most common route we recommend.

Please get advice if your relative is considering Equity Release: although there are costs for the advice process, it will ensure that your family gets the right type of arrangement for your specific circumstances.

Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.  Typical equity release advice fees will be £2,000.

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT SEEK INDEPENDENT ADVICE.

For more information about funding care, go to our section here.  Or join our forum and tell us your thoughts and ideas.

About the author

Almary Green

Almary Green Investments Ltd is an award winning firm of independent financial advisers helping individuals and businesses throughout East Anglia and beyond. We’re Chartered Financial Planners – the Gold Standard for the industry – and in November 2014 we were named Chartered Financial Planners of the Year 2014 by the industry’s professional body, the Personal Finance Society.