You have probably heard of Equity Release before, and you may have even wondered if it is the right approach for you.
Sadly, Equity Release hasn’t always enjoyed a good reputation, but we are pleased to say that there are some excellent products on the market now, that make it a very effective solution for some clients.
There are two types of equity release product:
A Home Reversion plan is the product where you sell your property to an organisation for a discounted value, for example, the house is worth £300,000 and you sell it for £200,000. You would be given the money and permitted to live in the property rent free, but the property automatically belongs to the organisation upon your death, and your family does not inherit any equity that maybe in the property. This is not a product that we tend to recommend but it could be a possible solution for some people.
The other Equity Release product is called a Lifetime mortgage – this is where you raise money, like a mortgage, against the value of your property. You don’t have to make any monthly payments, although you can pay the interest only rather than allowing the interest to roll up, if you prefer. The interest accrues each day and upon your death the mortgage and accrued interest is payable by your estate back to the lender. But, crucially, the property remains part of your estate, meaning the sale value, less the mortgage, would be left to your beneficiaries.
These products are ideally suited to people who are asset rich but cash poor. In other words, you own your property outright, you don’t want to move house and downsize, but you don’t have much cash in the bank to help with your retirement income.
Why is this worth considering?
- Lifetime memories – freeing up cash will enable you to treat yourself to holidays you may have dreamed of, perhaps a second home, or even that special car
- Independent schooling or university – you can support your children or grandchildren through independent school, or make university life a little more comfortable, to reduce their debt
- Little treats – you may not have grand plans, but there are day trips, and small pleasures in life you would like to enjoy
- Pension – if your existing pension is looking a little lack lustre, this may give you the chance to retire comfortably – giving you more time to enjoy the pursuits you love
- Day to day living – if you are struggling to meet the costs of day to day living releasing capital can help you
- Estate planning – this is a very elegant way of protecting your property from the risks of inheritance tax which is even more relevant if your property is worth in excess of £1million.
Equity Release is a very complex subject and is also a product we feel quite passionate about for enabling clients to live their best lives. We will be returning to this subject to share more in time.
We are approved members of Equity Release Council, so if you would like advice on whether Equity Release is the right solution for you, please contact us on 01344 875 310.