Frequently Asked Questions
What does equity mean?
'Equity' is the amount of money you have tied up in your home – that is the value of your property less any mortgage or other loans you have secured against it. If you have no mortgage or loan, it is the value of your house.
What is equity release?
'Equity release' allows you to use some of the money tied up in your home without moving home. It can provide a cash lump sum, a regular income or a mixture of the two.
How old must I be for this?
You (or you and your partner if there are two of you) should be over 55 for a lifetime mortgage. For home reversion plans, the age is 65.
What can I use the money for?
That is entirely up to you – there are no restrictions.
Do I have to be in good health?
No, your health is not something the equity release scheme providers are concerned about. However, if you are in poor health an equity release scheme may not be suitable for you.
Can I move house?
Most equity release schemes allow this, provided the new home still meets their criteria.
What if my new home is worth less than my present home?
If you have a lifetime mortgage and move to a lower value property you may be required to repay some, or in cases where the property is of a much lower value, all, of the loan and the accumulated interest.
If you have a home reversion plan then the provider will usually retain the same percentage of your new home, with the leftover cash from the sale of the old property being split between you and the provider.
Can I extend my house?
Most equity release schemes will allow this, but you will need their approval before you go ahead.
If I sell my house, do I have to buy another one?
No, equity release schemes are designed to end when the property is sold. You simply repay the loan from the proceeds for a lifetime mortgage (or pay the percentage over to the reversion company for a home reversion plan). The rest of the sale proceeds are yours and there is no further commitment.
What happens if there is a change of ownership?
If there is a change of ownership following a marriage, divorce or remarriage, part of the equity you have released may need to be repaid. A new additional owner may not have the right to stay in the property after the death of the person who took out the equity release scheme. The rules vary between different schemes, so please make sure you understand the details.
What about state benefits?
Means-tested benefits may be affected by an equity release scheme. The effect on means-tested benefits is one of the areas a financial adviser should take into account before making a recommendation. We will consider this with you.
Can our son/daughter continue to live with us?
Yes, however generally anyone who lives in the home and is aged over seventeen will need to sign a form to waive their right to occupy the property in favour of the provider of the equity release scheme. They should seek legal advice before signing. The same thing happens with a normal mortgage.
What about tax?
Cash lump sums released with lifetime mortgage or home reversion schemes will not normally attract income or capital gains tax. Only if you would have paid tax on selling your home could there be any tax.
Will equity release affect my pension?
Your basic state pension and personal pension will not be affected by releasing equity with a lifetime mortgage or home reversion scheme; however, state benefits related to your pension income may be affected by an increase in income or capital.
What happens on my death?
On your death (or the death of the remaining partner if you have taken out a joint scheme) your property will usually be sold. With a home reversion scheme the proceeds of the sale will be split between the provider and your estate according to the percentage of your home owned by the provider. If you took out a lifetime mortgage the loan and accrued interest is repaid from the sale of the property. However, the outstanding loan can also be repaid from other sources.
Can I release more equity in the future?
Both lifetime mortgages and home reversion schemes may have facilities to release more equity. However, this will depend on your age, property value, how much has already been released and the terms and conditions of the plan.
Should I tell my family?
If you are using your property to improve your retirement, you will reduce the value of your estate on your death. We therefore strongly recommend that you discuss your intentions with your family before making this decision.
How long does it take?
It usually takes about 6-8 weeks from your signing the application form for you to receive your lump sum, or the first of your monthly income payments.
What do I have to do once an equity release scheme is set up?
You will have certain obligations such as keeping up buildings insurance and maintaining the property in good condition.
Will I need a solicitor?
Just as you would not dream of buying a home without seeing a solicitor, it is important to seek independent legal advice before raising a loan against your property or selling a share in it. You should appoint your own independent solicitor who will act on your behalf throughout and ensure that you fully understand the process at every step. We can refer you to a panel of specialist, independent solicitors if this is required.
What will it cost?
We charge £350 to cover the costs involved in providing the advice, this is only payable if you decide to put in the application for equity release. We do not make any charge if we cannot find a suitable equity release plan or if you decide not to apply for it. You will be liable for the cost of valuing your property and for your own legal fees. A typical valuation fee for a property valued at £100,000 would be £385, typical legal fees would be in the region of £500. In some cases, you will be liable for the provider’s legal costs. Costs vary depending on the plan, but are approximately £200 - £300.
Can I end up owing more than my home is worth?
No. With a home reversion plan, you do not owe anything – the reversion company owns a share in your house. With a lifetime mortgage, we only recommend products from SHIP members. SHIP stands for ‘Safe Home Income Plans’. SHIP is an organisation dedicated entirely to the protection of home income plan-holders and the promotion of safe home income and equity release plans. SHIP members subscribe to a Code of Conduct and their plans include a ‘no negative equity guarantee’. This means that you will never owe more than the value of your property, nor leave a debt to your estate, no matter what happens to house prices.
Wasn’t there a problem with these plans a few years back?
Yes, there was. It related to some lifetime mortgage plans that did not have a no negative equity guarantee, and some plan holders ending up owing more than their home was worth when house prices fell. We do not recommend plans without the guarantee.
I heard some criticism from a consumer body?
There was some – largely saying that the plans were a last resort. We tend to agree that they are, but we do not see this as a criticism of the plans. All other avenues should be explored first, but if you need more cash (and do not wish to move) these plans can be a very good answer to your problem.
Can I end the scheme early?
This depends on the scheme. You can usually repay a lifetime mortgage early. You should, however, remember that these plans are intended to be long-term plans, so the provider may make an early repayment charge. You cannot cancel a home reversion scheme once it has been set up.
Will equity release affect my pension?
Your basic state pension and personal pension will not be affected by releasing equity with a lifetime mortgage or home reversion scheme. State benefits related to your income may be affected by an increase in income or capital.
What is SHIP?
SHIP is an organisation dedicated entirely to the protection of plan-holders and the promotion of safe home income and equity release plans. SHIP stands for 'Safe Home Income Plans'.
SHIP members subscribe to a Code of Conduct and their plans include a ‘no negative equity guarantee’. This means that you will never owe more than the value of your property, nor leave a debt to your estate. SHIP also provides a formal procedure for handling complaints. Information is available on-line at: www.ship-ltd.org, we will only recommend products from SHIP members.
Does Equity Release help with Inheritance Tax?
If you spend the cash you get from an equity release plan, then your estate for inheritance tax will go down. If you would have paid inheritance tax otherwise, then you will be saving tax.
However, it is very rarely a good idea to use equity release as an inheritance tax saving plan – it just costs too much for what it saves. If it works to reduce your eventual inheritance tax bill, it is probably best viewed as a useful side effect of the equity release plan. That said, of course, it could be a nice bonus to think that 40% of what you spend out of your equity release money is inheritance tax that will not need to be paid!
I feel uncomfortable about selling a part of my home. Am I safe?
As part of the plan agreement, you are given the right to live in your home for the rest of your life.
A lawyer will tell you that owning a house is really owning several rights over it. These are mainly the right to use it (to live in it) and the right to sell it or give it away. You will keep the first right, the right to live in it, for the rest of your life; it is only the second right that you will be selling for now.
This advert refers to home reversion plans and lifetime mortgages. To understand the features and risks, ask for a personalised illustration.
You can choose how we are paid for mortgages: by commission (paid by the lender) and a fee of £350; or by a fee only, typically £800.