Equity Release Advice In April 2024
In this article, we look at the cost of getting equity release advice and also some background to what these types of schemes are.
What types of equity release plans are there?
An equity release scheme is a loan, where the borrower uses their home equity as security.
An equity release plan is a type of financial product that allows a borrower to release money, via a lump sum, from their home, typically by borrowing against it. Typically you’d expect to receive some equity release advice to help you decide what the best option is.
Equity Release is done without having to move out of the house and can provide a regular income, as well as paying off any current mortgage or other loans on the property. There are several different types of equity release plans that are available.
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An equity release mortgage can give you extra money to allow you to use the lump sum for whatever you want, including paying off debts or buying a new house.
You normally won’t have to make regular monthly repayments but instead will clear the amount borrowed at the end of the term. Each type of equity release scheme is different so it’s important to consider your options and find out more about what’s right for you.
It is estimated that there are currently around 2 million equity release schemes in the UK and this number is expected to rise in coming years as people need extra money due to various circumstances such as ill-health, care costs and debts
Who can get equity release?
The requirements to apply for releasing equity are stringent, but equity release is not restricted to retirees. as any people assume.
The equity release market has widened so that it can now be used by buyers who are looking to access funds in the future. Typically this is people aged over 55.
As you get older, the amount of income gained from your home reduces as it becomes harder to keep up with household expenses. But equity release can help ensure that you don’t outlive your savings without having to move into a care home or downsize.
You can use equity release to pay off your mortgage and free-up your capital for other things such as a dream holiday, small business venture or home improvements. It might also help with the costs of long-term care and you can leave money to your family when you pass away
This is because they don’t require repayment until after your death and allow you to continue living in the property throughout.
Why you should seek equity release advice
It is important to understand that equity release is not for everyone, there are several requirements that you need to meet before it can be considered. You must own your home outright or have a small mortgage on the property
You should seek professional equity release advice about whether equity release will suit your needs and based on an assessment of your personal circumstances.
Get advice from a fully qualified and experienced equity release adviser
An equity release advisor can advise you on the best existing equity release schemes that are available and if it is right for your circumstances. They are a specialist type of financial adviser who can give you the right type of mortgage advice.
This will help ensure that you understand what any charges would be and what they would mean for you and your family and whether it’s the right option, considering all of your needs. This may even include speaking to a solicitor about these options.
A good equity release adviser will also be able to understand your personal financial situation and help you decide how much money you would need.
How much does equity release advice cost?
The cost of equity release advice is usually nothing unless the scheme goes ahead and you receive a loan. Most advisers do not now charge an advice fee.
You usually pay a one off fee for this type of advice, but some advisers may also charge an arrangement fee to complete the process.
The cost of equity release can vary depending on
– The amount you want to borrow
– Whether or not it is repaid in part or in full when you die or go into long term care
– The amount of fees that are payable, if any
– How much interest is charged on the loan
– Whether you want to repay all of your loans in one go or in monthly instalments.
If you use an adviser, they will be able to give you a full breakdown of all the fees involved.
It is important to have an understanding of the costs that are involved in equity release.
These can vary depending on the individual scheme, so it’s essential to seek independent equity release advice before making any decisions.
Charges will also depend on how long you remain with the plan and whether you make additional repayments.
The latest equity release interest rates as at 1 April 2024
The table below shows you the latest rates, as at 1 April 2024, for lifetime mortgages from some of the leading equity release providers in the UK.
| Product | Provider | Interest Rate | Incentives |
|---|---|---|---|
| 5.26% | |||
| 5.31% | |||
| 5.46% | |||
| 5.58% | |||
| 5.60% | |||
| 5.60% | |||
| 5.61% | |||
| 5.61% | |||
| 5.63% | |||
| 5.65% |
"The benefits of an equity release calculator are that it enables you to understand your options and types of equity release schemes that are available which can help you decide if you would want to proceed with an equity release plan."
Age Requirements for an Equity Release Plan
The minimum age for getting equity release is 55 years old, but this depends on the particular scheme you are looking at.
There are some equity release schemes where it is possible to be younger than this age, but you should always think about your personal circumstances and if it would be right for you before making a decision.
Equity release plans can cost money to enter into so remember that this will be an additional cost and you should consider whether equity release is right for your circumstances.
Equity release calculator
The benefits of an equity release calculator are that it enables you to understand your options and types of equity release schemes that are available which can help you decide if you would want to proceed with an equity release plan.
It also gives you an indication of the amount of money that might be available for your circumstances so allows you to consider what this might mean for you, considering all of your needs.
The equity release calculator is also helpful if you are working out how much money you may need to ensure your financial future.
Advantages of Equity Release
Theadvantages of equity release are that it can help you plan for retirement and provide an opportunity to use the equity in your home and raise money for different purposes.
There are several types of equity release plans that contribute towards:
– Funeral costs
– Home improvements
– Paying off outstanding debts
– Other family members
– Regular spending
– Holiday
If you decide to engage the services of specialist equity release experts, they will take your personal circumstances into account and provide you with an individual equity release plan.
When considering whether or not to proceed with an equity release plan, ensure that you understand any charges involved in entering into this type of plan. These can vary depending on the individual scheme.
Disadvantages of Equity Release
The catch with equity release is that your home will no longer be yours and you may not know exactly how much money will be available.
You will also not know how much it will cost you until the money is actually released.
It is also important to remember that your home may be repossessed if the equity release plan is not repaid in full should you die or fall into long term care.
Another disadvantage of equity release is that you may need to go through a credit check and you will not be able to pass on the property as an inheritance.
When you also consider that the value of your property may go down if the equity release plan is not effectively managed, it’s important to speak with a specialist adviser before making any decisions.
When considering whether or not to proceed with an equity release provider, remember there are costs involved in entering into this type of plan. These can vary depending on the individual scheme.
It’s important to get independent legal advice, through equity release solicitors, and ensure you understand all of the charges involved before taking out an equity release plan.
It is also worth remembering that you will be protected by the Financial Conduct Authority (FCA) and all mainstream providers are monitored by the Equity Release Council.
Can I use equity release if I’m under 55?
It’s not possible to take out an equity release mortgage if you are under 55 years old.
However, you might be able to get a younger dependent on the loan secured against your home if it is in joint names.
If this is not possible, there may also be some other options available for you including using funds from an inherited property or a legal trust.
Equity release plans are aimed primarily at older homeowners who have a low risk of illness or death for a number of years.
This means that it is not usually an option if you are under the age of 55.
What is a negative equity guarantee?
A negative equity guarantee is an agreement between older homeowners and their lenders that if the value of their home falls below a certain level, the lender will cover the shortfall.
This means that if house prices fall, the lender will pick up the tab for any loss in equity.
Lifetime mortgages
A lifetime mortgage is a type of equity release product that is typically, but not always, aimed at retirees.
The plans are designed to help you pay off your home loan while still living in your home, although there are typically strict guidelines that you must follow to ensure repayment of the loan.
It’s important to remember that any money released through these types of plans will be tied up for a specific period of time and that you will have to pay interest on the money borrowed.
The advantage to Lifetime mortgages is that you do not need to worry about repaying the money and interest and charges will only apply if you actually use the money.
You may also be able to choose how long your Lifetime mortgage lasts for or what type of repayment plan suits your needs best, which might include monthly repayments or yearly repayments.
In addition to this, there are also other types of products called a drawdown lifetime mortgage. A financial adviser will be able to help you understand how these work.
How does a lifetime mortgage work?
A lifetime mortgage is a type of equity release plan that allows you to borrow money from your own home.
Typically, but not always, it is aimed at retirees who are struggling to repay their current home loan due to reduced income levels or increased expenditure.
Most lifetime mortgages allow for around 40% of the value of the property to be released as a lump sum, with the rest of the loan repaid when the property is eventually sold.
A Lifetime mortgage works by borrowing money from your own home and then repaying it later on at an agreed repayment time and interest rate which varies depending on the individual plan.
For example, if you release £50,000 using a Lifetime mortgage plan, you could end up paying as much as £110,000 once the loan has been repaid.
There is an early repayment charge payable if you repay your Lifetime mortgage early and this can be anything from 5% to 10% of the amount borrowed.
Your Lifetime Mortgage lender may also charge interest on the amount outstanding and usually charges interest either monthly or yearly which means it’s more expensive than a standard home re-mortgage.
Therefore, please do consider the impact of an early repayment charge.
What are Lifetime Mortgage rates?
Typically Lifetime mortgage rates will be between 3% and 8% depending on your lender and financial status.
It is important to remember that Lifetime mortgages work like a secured loan and any charges for late repayment will be the same as those used for a standard home loan.
Home reversion
A home reversion plan is another type of equity release plan that allows you to keep living in your home.
You may also be able to sell part or all of it after this time, depending on the individual agreement.
Home reversion plans work in a similar way to Lifetime mortgages but there is no repayment period and once the property is sold, you will receive the money you originally paid to release equity.
Frequently Asked Questions
What are Lifetime Mortgage rates?
Typically Lifetime mortgage rates will be between 3% and 8% depending on your lender and financial status.
How does a lifetime mortgage work?
A lifetime mortgage is a type of equity release plan that allows you to borrow money from your own home. Typically, but not always, it is aimed at retirees who are struggling to repay their current home loan due to reduced income levels or increased expenditure.
What is a negative equity guarantee?
A negative equity guarantee is an agreement between older homeowners and their lenders that if the value of their home falls below a certain level, the lender will cover the shortfall.
How much does equity release advice cost?
The cost of equity release advice is usually nothing unless the scheme goes ahead and you receive a loan. Most advisers do not now charge an advice fee.
