If your parents own their own home, then Equity Release can be a way of getting capital without having to move house. Equity Release provides either a tax-free cash lump sum or the opportunity to draw down smaller amounts of money against the value of the property.
In this guide you can discover everything you need to know about Equity Release mortgages, including information on eligibility, interest rates, the financial risks, and where to find independent financial advice.
Age Space has consulted with Equity Release specialists – Laterlivingnow to bring you this expert advice.
What is Equity Release?
Equity Release is a way of accessing the money that is stored in the value of your home, without you having to sell up and move out. When the last owner dies or moves out permanently (perhaps into long term care), the property is sold and the Equity Release repaid, with the balance belonging to you or your estate if deceased.
Laterlivingnow are a small team of dedicated and experienced Equity Release advisers. A trusted voice in the field of later life planning, they will prioritise your needs in order to help you make the best financial choices. They are members of the Equity Release Council and founder, Simon Chalk, serves on the advisory board of SOLLA (the Society of Later Life Advisers).
The main types of Equity Release
There are two main types of Equity Release: Lifetime Mortgages, and Home Reversion Plans. It is extremely rare nowadays for a Home Reversion Plan to be an appropriate way of taking Equity Release, as it involves selling a part or all of your property, in exchange for a lump sum and a lifetime tenancy agreement.
In fact, less than 1% of Equity Release arranged is via a Home Reversion Plan, so we will concentrate on the more viable option – a Lifetime Mortgage. The advantages and potential disadvantages of Lifetime Mortgages are fully explained in our complete guide to Lifetime Mortgages.
The most common type of Equity Release is a Lifetime Mortgage. As with a traditional mortgage, a Lifetime Mortgage is a loan against the value of the property. The older the homeowner is and the greater the value of the property, the larger the sum that can be borrowed. There is no time limit or end date to the loan, which is only repaid when the property is sold, following the death or move in to care of the last borrower.
Who is eligible for Equity Release?
Providers vary, but to be eligible for a Lifetime Mortgage, the minimum age is usually 55 years old. If you have an existing mortgage or other debt secured against your property, this must be paid off either from the Equity Release itself, or before you go ahead with the application.
Each provider has its own minimum acceptable property value, for some this starts at £70,000.
If you have experienced credit problems in the past, usually it does not count against you with Equity Release, (unlike with ordinary mortgages) because you aren’t required to make any regular repayments. However, if you have made special arrangements with creditors, such as an IVA, CCJ, or Debt Management Plan, Equity Release providers will have certain requirements. For instance, there could be a limit as to how much the debt is, or they may insist it is paid off from the Equity Release money.
Choosing an Equity Release provider
Laterlivingnow MD and Equity Release specialist, Simon Chalk, guides us through what to look for when choosing an Equity Release adviser. There are four main considerations to take into account.
Getting the best advice
Equity Release advice is highly regulated by the Financial Conduct Authority (FCA), requiring that homeowners over 55 looking to take an Equity Release plan, can only do so having taken financial advice. With over 400 different plans on the market at the moment, it can be confusing and difficult to know where to begin looking for sound, impartial advice.
Equity Release Council
Membership of this trade body for the Equity Release market is open to advisers, providers, solicitors and surveyors. Although membership is not compulsory, any adviser involved in Equity Release really should be a member and adhere to the Council’s strict Rules and Guidance.
Experience and Credentials
The Equity Release marketplace has grown rapidly in recent years, with many companies now offering advice. You want to avoid dealing with someone who may have simply jumped on the bandwagon, having little experience or knowledge.
Many advisers are not truly independent. Instead, they offer only a very limited range of plans from one provider, whilst others claim to be ‘whole of market’ which can be misleading, as they may in reality offer just a handful of providers.
“The FCA state that you must seek independent financial advice when looking to release equity from your house. We strongly recommend, that when choosing an adviser you make sure they are able to advise on all nine providers below, as they are Equity Release Council members.” Simon Chalk, MD, Laterlivingnow
In addition to cost, there are a lot of other things for an Equity Release advisor to consider when recommending a suitable Lifetime Mortgage lender. Such as - flexibility for meeting changes in your circumstances, service standards and financial strength.
Equity Release providers
Currently, there are nine Lifetime Mortgage lenders who offer their plans through truly independent advisers and are members of the Equity Release Council. Although not all will be familiar brands, they are all regulated and authorised by the FCA, so you can feel reassured that they are bona fide providers.
Here is a brief overview of the 8 providers.
Established over 300 years ago and with some 33 million customers world-wide, Aviva is a familiar name to many and the UK’s largest insurer.
Aviva were the first provider of Lifetime Mortgages in 1998, with over 250,000 customers having released more than £8 billion from their homes. They offer drawdown and lump sum plans, and may provide extra money to those with certain medical conditions or lifestyle factors, such as smoking.
Founded in 1847, Canada Life is perhaps less well known in the UK, yet is the oldest Canadian life assurance company with £820bn of assets under management. They took over a smaller UK Lifetime Mortgage lender called Stonehaven, bolstering their range of plans and bringing financial strength to their proposition.
Their product range includes unique Second Home and Buy-to-Let Lifetime Mortgages, as well as ordinary lump sum and drawdown Lifetime Mortgages on your main home. Canada Life are renowned for having flexible, simple to understand plans, with very clear terms and charges.
Just is part of Just Group plc – a FTSE-listed specialist UK financial services company. It was created by the merger of Just Retirement Group and Partnership Assurance Group and specialises in retirement income, care-fees funding as well as Lifetime Mortgages.
Rewarding borrowers with energy-efficient homes, Just have a ‘Green Lifetime Mortgage Feature’, whereby they may reduce the interest rate charged on some of their plans.
Legal & General
Established in 1836, the Legal & General Group, is one of the UK’s leading financial services companies. Many will be familiar with the rainbow umbrella logo.
A relative newcomer to Equity Release, Legal & General Home Finance has quickly grown to become one of the leading lenders. They offer a competitive and flexible range of Lifetime Mortgages including their unique Income Plan and Energy Saver Cashback scheme for borrowers wanting to make home improvements.
LV have been providing Lifetime Mortgages since 2002 and have a lot of experience in the field.
They are the UK’s largest friendly society and a leading financial mutual with more than 5 million members and customers. LV offer simple lump sum and drawdown Lifetime Mortgages, with clear charges and fixed interest rates.
more2life is part of the 'Key Group' of companies, specialising in providing Lifetime Mortgages. Unlike the household names of Aviva, LV or Legal & General, more2life does not have any money of its own to lend. Instead, they set up deals with third parties such as insurance and pension companies, who provide the funding for more2life’s range of five different Lifetime Mortgage plans.
more2life’s plans offer flexible plans, including larger loans for borrowers with certain medical conditions or lifestyle issues.
OneFamily is the UK’s 3rd biggest friendly society by membership, with over 2.6 million customers. Their simple lump sum only Lifetime Mortgages range was launched in 2016, with clear charges, flexible features and a choice of payment options.
Pure Retirement’s business model is similar to that of more2life. They offer four different Lifetime Mortgage Plans funded by several external companies. The plans include lump sum and drawdown options – some with unique features, such as being able to repay up to 40% of the initial loan without penalty.
If you need expert advice choosing an Equity Release provider, Laterlivingnow have the right credentials to help you make that big decision. Find out more about Laterlivingnow's Equity Release Advice service.
It's vital to get independent advice on Equity Release
A financial adviser who is authorised and regulated by the Financial Conduct Authority is your best source of independent advice about Equity Release. There are 2 specialist accreditations that advisers may hold that demonstrate their knowledge and experience of dealing with Equity Release and other later life issues. These are:
These accreditations show not just their specialist knowledge in providing Equity Release advice, but they also evidence that the adviser understands the need to safeguard vulnerable people.
The Financial Conduct Authority also suggests that taking independent Equity Release advice is a good means of protection. If you do not take independent financial advice and end up choosing an unsuitable Equity Release plan, then there will be fewer grounds for making a complaint if you are unhappy.
How much does Equity Release cost?
The primary cost to consider when thinking about Equity Release is the interest rate, as this determines the overall amount that will need to be paid back to the lender.
There are one-off fees to be paid for financial advice, a solicitor and possibly to the lender, but all of these can often be met from the Equity Release money itself. Do bear in mind that any fees you add to the loan, will have interest applied to them.
You can find out more about the costs of Equity Release on our Equity Release Calculator page. This page has a free-to-use Equity Release calculator that requires no personal details to be entered.
Frequently Asked Questions about Equity Release
Does Equity Release affect tax credits or benefits?
Equity Release can affect eligibility for tax credits and means-tested benefits. The most common benefits affected by Equity Release are Council Tax Reduction and Pension Credit.
Your financial advisor should clearly explain to you how Equity Release may impact on any tax credits or state benefits that you receive, and only recommend Equity Release if the advantages to you outweigh the potential loss of any benefits.
Will I still receive my full pension entitlement?
Private and state pensions are not affected by Equity Release.
However, if you receive Pension Credit, which tops up the basic state pension statement pension to increase pensioners' weekly income, then this may be affected by Equity Release, depending on the amount you release and the timing. A good adviser should help you avoid losing any entitlement with careful planning and understanding of the rules.
Can you release equity before the age of 55?
No the minimum age for equity release is 55 - although some lenders will accept applications shortly before your 55th birthday, so that you can time completion to happen very soon after, avoiding delays.
Is there a maximum age for Equity Release?
Some lenders do not have an upper age limit, whereas those that do, tend to set the maximum age for Equity Release fairly high at 90 years of age.