News & Views

Equity Release – a good idea or not?

Equity release, where a person aged 55 or over is able to release cash from their home and continue living there, seems to be very much back in favour.  The money may be taken as a lump sum or in several smaller amounts or both.  In simple terms, the home owner retains ownership of their home and the loan is paid back with interest when they die or move into long-term care.  In the case of a couple, this will happen on the move or death of the surviving partner. Another form of equity release is home reversion.  This involves selling part of your home in return for a lump sum or regular payments.  At the end of the plan, the property is sold and the sale proceeds are shared according to the proportions of ownership.

Part of the reason that equity release is seen as attractive is the current low interest rates in the UK. Interest rates on lifetime mortgages are more expensive than conventional mortgages but the latter are often difficult to obtain for the over 55s. However, entering into equity release is something that should not be done lightly and is often seen as a last resort.  This is because interest is compounded and eats into the value of the property. Equally, there are often additional charges that can be high.  Some products are complicated and inflexible and with 121 lifetime mortgages now available, it can be difficult to choose the right product

It is also important that you discuss this with your children as it could significantly reduce their inheritance. On the other hand, equity release can fund home improvements; provide assistance sooner rather than later to younger generations; fund home care costs; or simply provide an additional income.

There are alternatives worth considering. Downsizing may be an option or, the Financial Conduct Authority has recently said that it is looking into assisting those with maturing interest-only mortgages who have no means of repaying them.  They will be publishing more details in the New Year.

For further advice please contact Nicole or our Wills, trusts and probate team.

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