For many elderly people, a significant portion of their wealth is tied up in the family home. They may wish to access this wealth in their lifetime and Equity Release allows them to do just that. Our partners, Independent Financial Advisers Almary Green offer the following guide.
Provided it is fully understood and is properly and safely set up, Equity Release can be a really useful tool in later life financial planning. It can be of great benefit, for example, to those whose entire wealth is tied up in their property and who would like to improve their existing income or fund a specific gift or purchase.
Types of Equity Release
There are two types of equity release: lifetime mortgages and home reversion plans.
- With a Lifetime Mortgage, both the outstanding amount borrowed and any accumulated interest become payable when the borrower dies or when the property is sold, if that’s sooner. Repayments can be made during the borrower’s lifetime, if desired. The home may need to be sold to settle the outstanding debt, so it is important that the whole family understands the implications before the arrangement is set up. Many Lifetime Mortgage providers will offer what is known as a “drawdown plan”. Under this type of plan, your property is assessed and the maximum amount that is available to you is established – known as your lifetime allocation. You can then draw against this allocation as and when needed, helping to keep interest charges to a minimum.
- A Home Reversion Plan involves the transfer of ownership of all or part of your home to a provider and you receive an agreed percentage of the value of the portion transferred. Plans vary: some involve paying a nominal rent whilst others provide rent-free occupancy. When the property is sold – either during your lifetime or on your death – the provider will receive the value of their share of the property at that time.
Where can I get advice?
A financial adviser who is authorised and regulated by the Financial Conduct Authority is your best source of advice. 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:
- The Society of Later Life Advisers (SOLLA) – see http://societyoflaterlifeadvisers.co.uk/
- The Later Life Academy – see http://www.laterlifeacademy.co.uk/
These accreditations show not just specialist knowledge, they are also evidence that the adviser understands the need to safeguard vulnerable people and deals with clients with empathy and patience.
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.