Equity release

Equity release is when a lender will offer you a certain sum of money known as a “lifetime mortgage” which will be based on the equity (difference between what the property is worth and what you owe on it). We would never suggest you take advice from the lender themselves, they may seem unbiased and extremely helpful - but remember they are a business who want the maximum share of your home for the least money and as such their advice could never be treated as impartial, no matter how it is presented. Rest assured if you contact them, they will be very, very persistent in trying to persuade you to agree to a deal. 

 

When you die, or go into care the property will be sold and the loan repaid, assuming that the property value will rise slower than the interest rate charged means that, in effect, the lender owns more and more of your property every year. If there is a shortfall the lender cannot pursue you for the difference, this is why lenders are so keen for borrowers to spend money on home improvements as it increases the value of the property and therefore protects their long-term interest.

Equity release loans are most suitable for people who want to live in your property for the rest of your days and do not have anyone to leave it to, the stark truth is: -

• If you were to go into care then the council would claim ownership, then sell the property to pay for your care costs, or
• Should you die while living there (and have not made a will determining your wishes) then the state will most likely claim it, sell it and keep the money.

If you are in either of these situations then you may as well take as much money as you can and spend the money on whatever brings you joy.

 

If you would like to free off some of the equity, but still wish to leave an inheritance then one option may be to simply sell the property to your descendants for the level of loan you were after, then they would rent it back to you (make sure you have a legally binding rental agreement done by ourselves or a solicitor). Because you do not legally own the property it could not be included in your estate, hence if you were to go into care there is no property in your ownership for the council to claim (please note that if you transfer just before you go into care the council could cry foul, apply to the court to reverse the sale, then sell the home).

 

At the time of writing (December 2021) the Nationwide Building society offered 3 mortgages for the over 55s, being a reputable lender, we would suggest that anyone considering their options may wish to talk with them about the idea.

• Equity release – no repayments at all, the house is sold when you die or go into care. The loan is repaid from the proceeds of the house sale;
• Interest-only mortgage – You pay the interest on the mortgage and when you die or go into care the original sum is paid from the sale of the property. This prevents the concept of “the longer it goes on- the more of the house is theirs” concern. They do allow you to voluntarily pay extra to clear it (usually up to 10% per year); and
• Standard mortgage – interest and capital repayments (just like a “normal” mortgage).

Banks that were researched at the time only offered equity release mortgages, usually through a third party such as Scottish Widows.

 

How we can help

In effect this option is a type of mortgage but with the option to simply not pay anything and let the interest accrue over time, assuming the interest charged is more that how much the property goes up each year then, in effect they own more and more of the share of the property as time goes on.

 

We work with several excellent third-party independent financial advisors who can look at the market for you to try and get you a better deal, solutions may include: -

• Renegotiating the interest rate with the equity release company
• Arrange a complete remortgage with your existing provider, giving you the extra money but at their standard interest rate (will be lower than equity release company), including possibly extending the term to lower your monthly payments (remember you can always pay in a bit extra if you want).
• Remortgage as above but with an alternative lender.

 

As stated previously we are not experts in this field and the advisor may well have other suggestions available.

Please note we make no commission from these referrals but do need clients to open a case so that we can prepare a financial brief for them. To gain our assistance you need to open a case, this is done by taking advantage of our free consultation service, activated by the link at the top of the page, should you wish to start a case the caseworker will send you the suitable payment link.

Please note your caseworker can only give generic advice, their role is to prepare your details for handling by our appointed financial advisor and to act as your point of contact, they will also issue you with your Password and PIN, these will be needed to log onto your client dashboard. From your dashboard you will be able to manage and view every aspect of your case, upload documents, images, files etc.