Equity release
If you own your own home and are 55 or over, equity release could provide you with a lump sum or additional income. It’s an increasingly popular tax-free way for people to finance or partly fund their retirement.
What is it?
Equity release describes a range of options that allow you to release the equity (cash) tied up in your home without moving. There are two main options when it comes to equity release: a lifetime mortgage or a reversion scheme. Neither have a fixed term and both allow you to stay in your home for the rest of your life.
What do they involve? A lifetime mortgage allows you to borrow money which is secured against your home. A reversion scheme involves you selling part or all of your home. Both ways can provide you with a lump sum, a way of topping up your income, or both.
You may choose equity release for any number of reasons. Some look at it as a way to pay off existing mortgages or debts, others may want to use it to help fund something special in retirement, like a holiday home. It can also be a useful way to help fund younger members of the family with those big moments in life, such as a wedding or deposit for a first home.
Of course, as with so many financial decisions, deciding whether to release equity from your home is something you should only do after careful consideration. And of course, while there may be considerable benefits, it may not always be the best thing to do.
The benefits
First and foremost, equity release proves a popular choice for many as it can be a great way of helping you release a portion of your home’s value, but still allowing you to live there for the rest of your life.
A lifetime mortgage allows you to pay interest monthly to ensure that the debt doesn’t increase, or add it to the amount borrowed. The home reversion option allows you to sell part or all of your home to raise a lump sum and/or a regular income. Your home, or the part of it you sell, now belongs to someone else. However, you're allowed to carry on living in it until you die or move out, paying no rent.
As all of the money you raise through equity release is tax free. This means that it can sometimes be the most efficient source of income through retirement instead of taking a lump sum from your pension, for instance.
The drawbacks
Sometimes equity release may not be the best option for you. Indeed, it is something that should only be done following a full assessment of your financial situation. It can prove tough to end an equity release plan once you have started, and you may face penalty charges too. It could also affect your entitlement to state benefits and grants.
If you want to leave an estate behind for your family, releasing equity will reduce the value in your home and affect the amount of inheritance you’re able to leave. It can also make the process of leaving properties to beneficiaries more complicated.
How we can help
Here at Niche, we’ll look at the whole of your financial situation with you to work out the best way forward, and help you decide whether equity release is right for you. We are regulated by the Financial Conduct Authority (FCA) to advise and sell equity release products.
We advise on equity release schemes which adhere to Safe Home Income Plan organisation (S.H.I.P) standards. SHIP was set up in 1991 by leading equity release providers and is dedicated to the protection of plan holders and promotion of safe home income and equity release schemes.