What is Equity Release all about?
Over £1bn was taken from Equity Release schemes in 2013 alone by the over 55’s in the UK.
Why?
A typical Equity Release client may want to release £50,000 to modernise the property for old age (a walk in bath, a wet room and low level kitchen units), use it for a holiday, buy a more up to date car, or use it for emergency funds.
Why do others take out Equity Release?
There are many different reasons, but the top 5 are:
- To pay for care in the family home or care costs
- To make those much needed home improvements
- To maintain holidays and lifestyle
- To pay off the conventional mortgage and debts
- To pass money to the children now
The main type of Equity Release is a Lifetime Mortgage. Your parents (or you if you are over 55) can release money from the equity tied up in the family home and choose if they want to make any repayments or not.
What does it entail?
You can take out one lump sum, or more popularly, you can take an initial amount of money and then have a reserve available for you at any points in the future.
You remain the full owner of the property and therefore any increase in property value goes to your estate. The loan plus any interest is usually repaid on 2nd death or the home being vacated due to Long Term Care needs. At this point, it is paid back by the executors of the Estate, from some of the proceeds of the sale of the property.
The great thing is that the interest is fixed for life and so you know, up front, what will be owed every year for life. Over this time, it is generally hoped that the property prices will go up and so if they do go up: this will increase what is left to loved ones.
An example of this is if a couple take out a Lifetime Mortgage for £50,000 and their property is worth £200,000. The plan lasts say 15 years, and so at an example interest rate of 5.74% per annum compound, then:
There will be £115,494 owing (including the £50,000 that was used)
No house price growth over this period would leave £84,506 left to the estate
But a 3% average increase would leave £174,506 to the estate!
Obviously, there is no guarantee on what house price values will actually be at any given point in the future.
In the meantime though, the £50,000 has been used to modernise the property for old age (a walk in bath, a wet room and low level kitchen units), a holiday, and a more up to date car and for emergency funds.
This has ultimately led to the children having more peace of mind and the owner of the plan having an easier and happier lifestyle.
So what do I need to know?
Well, the lender will get a fixed interest for the life of the plan that is calculated by way of compounding what is owed month by month, or year by year. They will then get this return on top of any money that they have loaned you, at the end of the plan, and only at this point.
The lenders of Equity Release are members of The Equity Release Council – a body set up to promote strict standards and codes of conduct in this arena.
The whole process is over seen by solicitors on both sides of the agreement and so there are several points along the way through the process where your suitability is confirmed.
There are many different plans and options, so it is vital that you take independent financial advice so that a qualified adviser can look at your personal situation, before recommending if Equity Release could be right or not and then what plan might be best.
You can enquire about Viva products in our shop. Just click HERE
The principals of Viva Retirement Solutions have over 23 years of industry experience and have released over £20m for people, when Equity Release is the right course of action.
Contact www.vivaretirementsolutions.co.uk
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
