A Guide To Equity Release

equity release
A Guide To Equity Release

Equity release can be a useful tool for homeowners over the age of 55 who want to supplement their retirement income or meet rising care costs. However, the terrain of such a choice is frequently difficult to navigate. Getting specialised advice and skilled help from a solicitor is a terrific way to guarantee that you make the proper decision.

In this article, we will answer some of the most frequently asked questions about equity releases from our clients.

What does equity release mean?

Equity release is a financial tool that allows homeowners to access funds from their property without selling or even moving. Even if they have lifetime mortgages, it gives them ownership and access to the equity in their residences.

Will the equity release have an impact on my pension credit?

Yes, equity release affects all means-tested benefits, including pension credit, council tax benefit, and certain health benefits. You must choose the financial boundaries for your own circumstances.

Could I lose my home if I use equity release?

No, homeowners have tenure security if they pursue equity release. This implies that you cannot be evicted from your home unless you violate any of the terms of your mortgage. Furthermore, a no-negative equity guarantee is in place, which essentially means that if your property falls below the amount owing (capital and interest), you (or your beneficiaries) will not be held liable for making up the difference.

Is equity release safe?

Equity release carries some potential risks and disadvantages that must be understood. First and foremost, the interest on such an option is considerable and compounding, and it would be prudent to consider other options if available. However, equity release is highly regulated by the Financial Conduct Authority, and there are reliable safeguards in place for clients. In addition, homeowners are not required to make payments during their lifetime, as the mortgage is repaid upon the first death (in the case of a single applicant) or second death (in the case of two owners), or upon the last owner entering long-term care or sheltered housing.

What are the qualifying factors for equity release?

To be eligible for equity release, you must be at least 55 years old, own a property worth at least £70,000 (some lenders stipulate £75,000), and reside in England or Wales. Each application may have a maximum of two proprietors, both of whose names must be listed in the Proprietorship Register at the HM Land Registry.

If only one respondent is listed, the second applicant must be included. The same rule applies if there are two proprietors listed, but the application is in the name of only one (such as in divorce proceedings).

Is equity release an option with shared ownership?

Equity Release is only available if you own 100 percent of the property, meaning that anyone who does not own the entirety of their property (with or without a mortgage that must be paid off with the proceeds of Equity Release) is ineligible. However, two individuals who jointly own a portion of the same property may be eligible for equity release if they meet the eligibility requirements.

It is also important to note that only two proprietors are permitted to apply for a lifetime mortgage. A property that is shared equally by three or more individuals is ineligible for equity release.

Can I use an equity release on a property that is co-owned?

Yes, so long as you meet the above eligibility requirements and there are no more than two proprietors on the property.

Can I use equity to repay debt?

Yes, equity release can be used to pay off debt, and it is a viable option for homeowners who are struggling to make other payments. However, financial advisors will make a final determination based on the type of debt, and high interest rates should be taken into account.

Can I repay the equity release in advance?

Yes, equity releases can be paid off early. However, you should be aware that doing so may incur an early repayment fee. The precise amount of this fee can vary from one year to the next.

Can equity release be used on a leasehold property?

Yes, even if you own a leasehold property, you can still take advantage of equity release. However, the process can be more complex than with freehold property, and legal fees are likely to be higher as a result.

Can I use an equity release to purchase a second home?

Yes, you can use the equity in your current property to purchase a second home. Lenders will have requirements that you must meet, and there are costs associated with purchasing a home, such as attorney fees.

Can I sell my home if an equity release is in place?

Yes, it is still possible to sell your home even if you have equity release. However, you must redeem the mortgage associated with the equity release, which will likely incur the previously discussed early repayment fee. You may also be able to transfer the mortgage to a different property. However, this may be contingent on additional criteria established by the lender.

Do you have to pay taxes on equity releases?

No, you do not have to pay taxes on equity releases. However, as previously noted, you should evaluate its impact on means-tested benefits.

Can I withdraw equity from my home if I am under the age of 55?

No, you must be at least 55 years old to be eligible for an equity release.

How long does it take to get equity released?

The time it takes to release equity varies and is determined by a number of factors, including property ownership, legal issues, and the intricacy of the case. Adding or deleting a spouse from the property register, going through a divorce, owning a property subject to a trust, or acting under a Lasting Power of Attorney, for example, can all have an impact on the procedure.

Other factors, such as related sales or purchases or the participation of new construction assets, can further lengthen the time required. To summarise, the process may take many weeks; therefore, it is critical to be prepared for any delays that may occur.

Is it possible to release equity if I have a mortgage?

Yes, if you have a mortgage, you can release equity. It is crucial to note, however, that the existing mortgage charge must be paid off with the monies you will be releasing. After subtracting fees and disbursements, any remaining amount will be paid to you.

How much equity can I withdraw?

The amount of equity you can borrow is determined by the valuation of your home, as determined by an independent surveyor appointed by the lender. However, you should be able to get advice on this from an impartial financial adviser.

How does equity release affect your estate?

This is determined by whether you have dependents or family members to whom you intend to leave your possessions. If you have dependents or family, it will lower your estate for inheritance purposes. However, you should think about your personal lifestyle. If you do not have any dependents or family members, equity release is a better option.

In conclusion, equity release might be a feasible option for homeowners looking to supplement their retirement income or offset rising health-care costs. However, given the complexities of this approach, consulting with a lawyer is strongly advised. By taking this step, you can make an informed decision while also protecting your financial interests and those of your family.

Avatar of DLS Solicitors by DLS Solicitors
3rd October 2023
Avatar of DLS Solicitors
DLS Solicitors

Our team of professionals are based in Alderley Edge, Cheshire. We offer clear, specialist legal advice in all matters relating to Family Law, Wills, Trusts, Probate, Lasting Power of Attorney and Court of Protection.

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