Frequently Asked Questions
Below are answers to some of the more frequently asked questions regarding equity release products, but do remember that the information on this site is no substitute to taking professional financial advice when considering equity release.
If your question is not answered here, give us a call to talk through the options.
What are the alternatives to equity release?
What other solutions might be more appropriate than equity release?
Your financial adviser will assist you in checking all possible alternatives before proceeding with any equity release recommendation. Some of the more common alternatives may include;
How do I know if I am eligible for a traditional mortgage?
This is an important question your adviser will answer before looking at equity release options for you. Traditional mortgages are usually significantly cheaper than equity release solutions, both in terms of the interest rates chargeable and also the fees involved. A capital repayment mortgage, if suitable, could see your debt fully repaid over the term leaving you debt-free in retirement and the inheritance you leave to your children unaffected.
Two important factors in the decision between equity release and a traditional mortgage are the available term and the amount you can afford to repay monthly;
If you have the means to repay the mortgage lending in a lump sum at the end of the term, then it is possible that you may be able to take a mortgage on an interest only basis. For example if you have a pension commencement lump sum, investment or endowment which is expected to provide a sufficient lump sum at that time or if you are happy to declare that you will downsize your house at that time to pay off the mortgage. This may make the mortgage more affordable monthly, though interest costs can vary over time.
If your adviser concludes that a mortgage is not available or not affordable then he will be able to assess the suitability of equity release solutions for you.
What are the risks?
Will the inheritance I leave behind be reduced by an equity release product?
Almost certainly yes, though how much it will be reduced will depend on what type of equity release product your adviser recommends and how long you live.
If you take a home reversion plan or an interest-only lifetime mortgage (wherein you pay the interest as it is charged) then you will normally know how much your estate will be reduced from the start. However if you take a lifetime mortgage with the interest "rolled up", or if you cease to make interest payments on an interest-only lifetime mortgage, then the interest will add up over time and your estate could be dramatically reduced. It's vitally important that you talk the options through with your adviser and understand the options. Ideally we would also recommend that you include your children in these discussions, though of course this is entirely up to you.
See our "Solutions" page on types of equity release for more on how each typical form of equity release could affect the inheritance you leave behind.
Is there a limit to how much my estate will be reduced?
In most cases yes, but not always.
The SHIP standards ensure that a lifetime mortgage lender cannot take more from your estate than the home itself is worth, however not all lifetime mortgages are SHIP standard products.
Home reversion normally involves a fixed proportion of your property being sold to the reversion company, so the effect on your estate is usually easier to predict. However your estate will also lose out on any house price growth on that proportion of your property.
Your financial adviser will discuss these factors with you before making a recommendation.
Can I be forced to leave my home?
Most equity release products explicitly allow you to live in your home for as long as you (or one of you, if your application is joint) are living in the property.
However you should examine the terms and conditions carefully with your adviser. For example some products specify that the provider has the right to force the sale of the property if you should move out for any reason or if you breach the terms and conditions of the equity release agreement.
If you take an equity release product and later find yourself in ill health and expected to be away from home in care or in hospital permanently then the product provider will normally have the right to force the sale of the property - even if you believe that you will one day be well enough to go home.
Do I have to make payments monthly?
Equity release schemes normally do not require you to make any payments after the scheme is taken out and still give you the right to live in your home for as long as you are able to.
However if you are able to afford to make payments then a lifetime mortgage which permits you to pay the interest as you go may be a suitable solution, as this can prevent the interest rolling up over time. Most lifetime mortgages which allow you to do this also allow you to cease making the payments at any time and let the interest roll up henceforth, but they may not allow you to start up the payments again. A financial adviser will go through these options with you in depth before making a recommendation.
Could an equity release solution affect my state benefits?
Yes! Equity release products, particularly those which generate income, can affect any means tested benefits you are receiving as well as any you might otherwise be eligible for in the future. Your adviser will discuss and record the impact expected and will advise you accordingly.
In some cases it may not be worth considering equity release as the effect on your benefits may outweigh the benefit of the equity release solution.
Can I repay an equity release solution later?
It's normally possible to pay off a lifetime mortgage or buy back a home reversion provider's purchased proportion of your property. However this is normally very expensive!
Equity release products are NOT short term solutions. If you believe there is any chance you may wish to reverse an equity release solution in the future then you should tell your financial adviser and they will advise you accordingly.
How much does Equity Release cost?
What are the charges?
Typically lifetime mortgages have significant fees, though some are available without any fees at all and most will allow you to add fees to the borrowed amount. Your adviser's assessment of which is the most suitable of the available options will include a cost-benefit analysis which takes into account all fees.
The below fees are typical approximations of those involved with lifetime mortgages;
Application Fee: £0-£1000
Solicitor Fees: £200-£500
Valuation Fee: £0-£600
Our advice Fee: EITHER - £695 plus any commission received from Equity Release provider
OR - £1995 and we will refund any commission from Equity Release provider to you.
Will the interest rate change?
Lifetime mortgages are often available with fixed rates which apply for life. This prevents nasty surprises should prevailing rates change later on, however you should note that if the interest on a lifetime mortgage is rolling up then the monthly interest cost increases every month, as the loan capital on which interest is charged is being increased by the interest itself.
With Home Reversion plans there is usually no interest rate applicable as these schemes involve selling part of the property at a discount and retaining the right to live in the property, rather than taking an interest-bearing loan.
How much could I borrow?
How much can I borrow now?
With a lifetime mortgage this will depend on how old you are and the value of your property. Typically you can borrow a maximum of 10% to 45% of the value of your house, though the market does vary over time. Often there is a minimum amount of initial borrowing which is typically around the £10,000 mark. For most people the maximum they can borrow will be limited by the value of their property, but for people with very valuable properties it may be possible to release up to or over £500,000.
Home reversion schemes are different from lifetime mortgages and involve selling part of your home to the reversion company. Although these schemes may even permit you to sell all of your home the benefit received in return will be significantly less than the value of the proportion sold.
It's vital you take advice on the amount of borrowing required as well as the type. Your adviser will make a complete assessment of your financial situation before making any recommendation and may well spot both problems and opportunities which a layperson might not.
Can I borrow more in future
Most equity release products will permit you to borrow more in the future, however some products guarantee this and allow additional borrowing to be made very quickly whilst some require that a completely new application be made.
As a general rule, flexible equity release products which allow additional borrowing also feature additional costs such as a higher interest rates. Your adviser will talk you through the options and recommend the most suitable solution for your specific needs and circumstances.
What types of equity release are there?
What is a lifetime mortgage?
A lifetime mortgage is in some ways just like any other mortgage - the mortgage company lends you a sum of money and a legal charge secures the loan against the property. However, with a typical lifetime mortgage there is no end date and you have the right to remain in the property as long as you are able. The interest on the mortgage either "rolls up" and is added to the loan each period, or you can pay it monthly and the debt remains the same.
With a roll-up mortgage the debt could grow to larger than the value of the house itself, though with a "SHIP Standard" lifetime mortgage the provider cannot take more than the value of the house when you are gone. Not all lifetime mortgages are "SHIP Standard" however, so your adviser will discuss this with you in depth.
When you leave the property or die the mortgage is repaid. However you may be able to take the mortgage with you if you move, or some providers let you repay the loan with no penalty if you want to downsize the property. Some providers are not so flexible however but may offer other attractive features, so your adviser will recommend the most suitable solution for your specific circumstances.
See our Equity Release Options page for more information.
What is a home reversion plan?
A home reversion plan is one type of equity release It is an arrangement where the provider buys part of your home from you (or even all of it) and gives you a sum of money or an income in return. The amount given to you for this purchase will be significantly less than that proportion of your home is worth, but in return you will have the right to live there for life. Typically the sum offered will be greater the older you are.
If you sell part of your home to a reversion company then you no longer legally own all of your home, and for some this is a difficult thing to accept. Additionally there is a gamble involved - if you sell part of your home at a substantial discount in return for the right to live there, but then you pass away or go into care relatively early, then in retrospect the discounted price will not appear to be a good deal at all.
This is a very brief introduction to home reversion. If you feel this type of equity release may be suitable for you then we would strongly advise speaking to an independent financial adviser. Home reversion is a long term solution and your adviser will take great care to ensure that it is suitable for you before recommending it.
See our Equity Release Options page for more information.
Which are better, lifetime mortgages or a home reversion plans?
Lifetime mortgage and home reversion plans are very different propositions and both types of equity release can be suitable solutions for specific clients. For some of the relative advantages and disadvantages see our Equity Release Options page.
One thing we do advise is that you seek a financial adviser who is qualified and authorised to make recommendations from the whole of the market for both lifetime mortgages and home reversion plans. If you take advice from a "tied" or non-independent adviser - one who can only offer a limited range of products - then it's possible you will not end up with the most suitable product available. This is why we are fiercely whole-of-market and independent.
Equity release for Inheritance Tax planning
Can equity release help my inheritance tax situation?
Potentially yes, but this must be planned with care. Equity release solutions taken to provide gifts (normally to children) can result in a reduction in inheritance tax liability, but this is a significant gamble as the costs involved with equity release can be higher than the savings made. Additionally, IHT avoidance techniques are sometimes unsuccessful - for example if the gift is deemed to be with "reservation of benefit" or if you die soon enough after making the gift for it to still effect your estate. It may surprise you that this time limit can be greater than seven years!
It is recommended that you have your inheritance tax liability and all other long term financial goals assessed at the same time as you plan your equity release, as these goals may not be mutually compatible. Your financial adviser will make these assessments and help you to plan and prioritise.
In addition to providing equity release advice we are able to provide formal inheritance tax planning advice. If you feel this would be appropriate for you, contact us and we can talk through the options.
Am I eligible for equity release?
Can I take a Lifetime Mortgage?
To take a lifetime mortgage you must normally be a UK resident aged over 55 and own your own home.
Your financial adviser will assess your position and speak to representatives of potentially suitable providers to find out which you will likely be approved for before making an application.
Can I take a Home Reversion plan?
To take a Home Reversion plan you must normally be a UK resident aged over 65 and own your own home.
Your financial adviser will assess your position and speak to representatives of potentially suitable reversion companies to find out which you will likely be approved for before making a recommendation.
Will my credit history affect my eligibility?
If you have a poor credit history this can affect your eligibility, however payment history is usually less important when applying for an equity release product than when applying for a regular mortgage as there are normally no payments to be made.
Serious credit history issues like bankruptcy, IVA or CCJs can sometimes lead to the lender rejecting you so it's very important that you declare these to your financial adviser.
Your financial adviser will assess your position and speak to representatives of potentially suitable providers to find out which you will likely be approved for before making an application.
I already have a mortgage - can I take equity release?
Can I re-mortgage with an equity release product?
Yes, it is possible to replace your existing traditional mortgage with a lifetime mortgage or home reversion plan and sometimes this can be the most suitable option.
Currently there are a high number of people approaching retirement with a mortgage still in place and little chance of repaying it before retirement. Others may find themselves actually retired with a mortgage. This is often caused by poor advice, bad planning, or under-performing endowment policies failing to meet mortgage debts as required. If you're happy to downsize your property to repay the remaining mortgage then this could be an easy fix, but if you are determined to keep the same home then this can be more difficult.
The first thing your adviser will examine is whether there are any obtainable and affordable alternatives to equity release. For example switching to capital-repayment and thus repaying the debt may well be a better solution. This might involve switching your mortgage type, mortgage provider, extending the term or a combination of these measures.
If a capital repayment mortgage can't be obtained or is not affordable then equity release could solve the problem, albeit at the risk of a substantially reduced inheritance for your beneficiaries when you are gone.
Can I pay the interest?
Potentially yes. There are lifetime mortgage schemes available where the interest can be paid periodically, avoiding the need for the interest to roll up. Some may also allow an element of capital to be repaid. Most will allow you to cease making payments later if you wish and allow the interest to roll-up henceforth, though some may not allow you to stop and start repeatedly.
Can I take equity release alongside my mortgage?
This is technically possible but sometimes impossible in practice. This is because whilst most mortgage companies and equity release providers are happy for a second charge to exist on the property, most are not happy for their own lending to be secured by a second charge.
Whether this will be possible may depend on who your existing mortgage provider is. Your financial adviser will liaise with your mortgage company with your authorisation and consider this option if available.
About our equity release advice and arrangement service
Can we just talk through the options by phone?
Yes, we'd normally recommend talking through the options by phone first. Very often alternative ideas may present themselves as we talk, which we can then explore before considering equity release.
Once we've concluded between us that equity release looks like a potentially suitable choice for you then we'd need to meet up to advise you face to face.
How much do you charge and when?
We never charge for an initial discussion by phone or face to face - we only charge you once we have completed our advice. We offer clients a choice of two fee options for advice and arrangement of equity release solutions;
If we advise you NOT to take equity release then we will not charge you anything. If we carry out any other work for you apart from equity release advice then this will be charged separately.
How long will the meeting take?
The initial meeting will normally take 1-2 hours. There will be at least two meetings and sometimes more depending on the complexity of your situation.
Do I have to involve my children or the beneficiaries to my estate?
This is entirely your choice, though we would always recommend that you do. Equity release is a long-term, normally permanent solution so having family support for this decision is a good idea if possible. Also it's a good idea for the beneficiaries of your estate to understand what you're doing so that there are no surprises when you are gone.
In some cases we will insist that a family member or solicitor is present if we are to advise on equity release for the protection of our clients. For example if a client is very frail or in very poor health.
Why use an independent adviser? Don't equity release companies have their own advisers?
Some financial advisers who can advise you on equity release are employed by an equity release provider and are often restricted to recommending that provider's products only. Even some advisers who aren't linked to one equity release provider can only make recommendations from a limited panel of equity release products.
In either of these cases, even if the adviser is truly first class they'll only have a limited number of directions in which they can point you - a more suitable solution might be available elsewhere but you wouldn't be told about it.
A whole-of-market financial adviser is one who can recommend the most suitable product for you from the whole of the market without restriction. We are whole-of-market for equity release and can recommend the products of any FCA authorised equity release provider in the UK.
Additionally as we have no need to pay part of your fees "up the line" to a company which owns us or authorises us we are extremely competitive on price.
Remember, a little information is no substitute for professional advice - taking an unsuitable equity release product can be a very costly mistake, both for you and for the ultimate beneficiaries of your estate. If you think an equity release solution could be suitable for you, give us a call to talk through your options.
