Equity Release Schemes | Explained & help available

Here we take an in-depth look at the two main types of Equity Release schemes (the Lifetime Home Equity Release Mortgage (HERM), and Home Reversion Plans), how they work, and the importance of making the right decisions when it comes to choosing an equity release scheme. We also offer further information as to how we can help with an equity release scheme.

Table of Contents:

What is Equity Release?

So, as we touched upon during the introduction, put very simply, an Equity Release Scheme is a way of enabling retired homeowners to raise funds by releasing some of the equity in their home.

If you are a homeowner and have now reached retirement age, the chances are you have little or no mortgage. Indeed, over 70% of our retired homeowner population fall into this category. Asset rich!

However, although many elderly people are asset rich - because their wealth is tied-up in their home, unfortunately the collapse in annuity yields, has meant that many retired people have little income to cover their daily living needs. Asset rich - but cash poor!

The problem becomes more acute when there are demands on limited resources to fund urgent capital needs, such as house repairs, rewiring, new roof etc., care costs, and necessary medical treatments.

Thankfully there are solutions available in order to release equity, but there are issues that must be considered before deciding the type of product. These issues will include inheritance provisions for children, State scheme benefits, and of course income and capital needs for both now, and for into the future.

'Where there's a Will...' Equity Release Schemes and Inheritance Tax explained

Attitudes to leaving inheritance vary widely.

In recent history, parents would scrape and struggle throughout their lives to leave young Fred and Mary their property! However, times have changed. Fred and Mary have usually made their own way in life, and if not retired themselves, they are pretty near to it!

Nowadays it seems that most children positively encourage their parents to use their assets in retirement, in order to improve their lifestyle, rather than going short purely to keep the inheritance intact.

Indeed, some Home Equity Release Mortgage products can be utilised as an effective tax-planning vehicle. It's worth bearing in mind that Estates chargeable to Inheritance Tax (IHT) will attract 40% of the value of the Estate after the nil rate band has been utilised. Even on modest and uncomplicated Estates, the tax payable can often run into hundreds of thousands of pounds!

'Life begins at 60!' Equity Release Schemes and retirement

For many of us, retirement represents a new lease of life - the chance to follow our dreams. Maybe a holiday home in Scotland or Spain; a caravan or camper, or a world cruise. Equity Release can help to provide all this, and any of the following uses:

Increasing income
Improving lifestyles, e.g. holidays, car, visiting relatives overseas
Inheritance Tax planning
Home improvements
Property purchase (including holiday homes)
Lifetime gifts to family
Paying for care
School or University fees for grandchildren

If a Home Equity Release Scheme is of interest to you, and you require further information, please call us on Freephone 08000 282 281 (lines are open seven days a week from 8am until 10pm and the call is free and without obligation). All the equity release products we arrange are backed by SHIP (Safe Home Income Plans) the equity release trading standards body. You can also enquire online at anytime.

Different Types of Equity Release Schemes

So, Equity Release is the act of using your home to raise cash, and there are two main types of different Equity Release schemes available in today's market place:

The Home Equity Release Mortgage (HERM):
Also known as a lifetime mortgage, this is a range of mortgage products that are designed for borrowers to release some of the equity in their property, on the basis that the interest charged is "rolled-up", and the borrowers never have to make monthly mortgage repayments. The minimum age of the youngest borrower must usually be 55, and the older the borrower, the higher the portion the homeowners may borrow. This tends to be in the region of 15% of the property value at age 55, rising to a maximum of 55% at age 85.

Borrowers may receive their equity release either as a lump sum, or as a monthly drawdown in order to supplement their pension income, or a combination of both if you require an additional regular income as well as a cash lump sum.
Home Reversion Plans:
Home Reversion schemes operate quite differently to the Lifetime Mortgage. Here the homeowner sells their home at a substantial discount of its value. By doing so they give up ownership, and therefore the right to any future increase in the property value. Generally most providers of Home Reversionary schemes require the borrowers to be at least 70.

Carefully weigh-up the alternatives!

Utilising equity release schemes must be very carefully considered.

Our professionally qualified and experienced Equity Release Mortgage Advisors will carefully assess your needs and requirements and will usually suggest that, if you have not already done so, you should talk the matter over with your family.

You must also consider that if you are currently in receipt of state benefits, these could well be affected by an increase in your disposable income and / or cash reserves.

Naturally, all SHIP approved mortgages must comply with the SHIP rules. This means that a solicitor must provide a certificate confirming that the implications of the scheme have been fully explained and understood. This ensures independent legal advice forms part of the process.

All the Equity Release products we arrange are backed by SHIP (Safe Home Income Plans), the Equity Release trading standards body.

Need more information about Equity Release Schemes?

Hopefully we've given you a little insight into Equity Release and the two types of Equity Release schemes available, and have answered any initial questions you may have had on the subject. Naturally, our aim is to provide all our customers with a first-class mortgage service. You'll find us to be friendly, yet professional, and able to discuss, explain and provide the most appropriate product, commensurate with your aspirations, needs and circumstances.

Please don't hesitate to Contact Us if you think an Equity Release scheme could be beneficial to you. You can call us on Freephone 08000 282 281 (between 8am and 10pm - seven days a week) or you can enquire online at any time, we'd love to hear from you and will be delighted to help in any way we can.

Enquire Online now, or call us today 08000 282 281 - our freephone lines are open 8am-10pm everyday! We'd love to hear from you!

This Equity Release product may involve a Lifetime Mortgage or Home Reversion Plan. To understand the features and risks, ask for a personalised illustration.

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Equity Release Schemes explanation