Equity Release Transactions
Equity Release Transactions
If you own your own home and are 60 or over, an equity release transaction could provide you with a lump sum or additional income. This could help remove financial worries, improve your income or provide capital for essential house repairs/ holidays/ gifts to grandchildren etc.
As life expectancy increases these arrangements are becoming more popular. Many widows/widowers find themselves with inadequate pension after their spouse's death and releasing equity in the family home could help relieve financial pressures and provide a better standard of living. As you would then reduce the size of your estate it can be helpful in reducing inheritance tax. However, this should not be seen as a primary reason for adopting equity release.
There are a number of companies providing Equity Release schemes and therefore, we believe, it is prudent to consult an expert rather than responding to an advert.
There are two main types of equity release scheme:
- Lifetime mortgages.
- Home reversions.
They work differently and can be complicated.
Colleagues within Foster Denovo Limited offer advice on equity release schemes, to help you decide if such an arrangement would benefit you and, if so, which would be the most suitable arrangement.
Lifetime Mortgages
Most Lifetime Mortgage Plans work by allowing you to borrow money against your home.
You repay the loan from the sale proceeds of the property if you move into permanent long term care or on death.
Advantages of a Lifetime Mortgage:
- Can be available to those as young as 55.
- Ownership of the property remains yours.
- You know how much money you will receive from the scheme at the outset.
- You may be able to draw down more money periodically with some schemes.
- You can still benefit from any rises in house prices.
- Your heirs will benefit from any equity remaining once the loan is repaid.
- The schemes are regulated by the Financial Services Authority.
Disadvantages of a Lifetime Mortgage:
- Your debt will grow over time. This may be limited by only releasing money when you need it or taking a monthly draw down of funds.
- The entire equity in the property may be exhausted, leaving nothing for your heirs. The negative equity guarantee means you cannot owe more than the house value if you live to a great age.
- Early repayment charges may apply should you wish to repay the loan early.
- Your tax position and eligibility for means tested benefits may be affected.
- Your options for moving or selling the house may be affected but, with the consent of the lender you can transfer the debt to another property
This is a Lifetime Mortgage. To understand the features and risks, ask for a personalised illustration.
Home Reversions
With a home reversion, you sell all or part of your home in return for a cash lump sum, a regular income, or both. Your home, or the part of it you sell, now belongs to someone else, but you are allowed to carry on living in it until you die or move out.
Advantages of a home reversion plan
- You are able to guarantee a proportion of your homes value as an inheritance.
- There are no monthly repayments to make.
- You benefit from any increase in value of the percentage of the property that you continue to own.
- Younger borrowers may be able to raise more money from their home with a reversion plan than with a lifetime mortgage.
- The older you are, the more money you will be able to release with a reversion plan.
- The schemes are regulated by the Financial Services Authority.
Disadvantages of a home reversion plan
- You are unlikely to receive the full market value of the share of the property you sell because the reversion plan company will give you the absolute right to live in it rent free for the rest of your life; they will not get their money back for a number of years.
- The reversion plan company owns a share of your home and will also benefit from any increase in value.
- Reversion plans cannot usually be reversed as you are selling part of your home.
- The majority of reversion plan providers do not guarantee further advances.
- Your tax position and eligibility for means tested benefits may be affected.
This is a Home Reversion Plan. To understand the features and risks, ask for a personalised illustration.
There will be a fee for Equity Release advice. The precise amount will depend on your circumstances but we estimate it will be £995. You have the option to pay us a fee and receive any commission which we are paid by the lender/company that buys your home. If you choose this option, we estimate that the fee will be £1,995