Understanding equity release: How thousands unlock tax-free cash each year
IF you’re a homeowner aged 55 or over, you may be able to unlock the value that has built up in your home as tax-free cash to help you supplement your later life finances.
Thousands unlock tax-free cash each year, according to the Equity Release Council, in the first half of 2024 over 28,000 customers took out new equity release plans, made use of drawdown reserves or got extensions to existing plans.
The average lump-sum amount borrowed by new customers in 2023 stood at £97,878 according to the Equity Release Council - how would you use a lump sum of tax-free cash?
How does equity release work?
To unlock equity from your home you must be aged 55 or over, and your property must be worth at least £70,000.
The amount of money that you can access is determined by the age of the youngest homeowner, your needs and the value of your home. The lowest amount you can release is £10,000.
There are two main types of equity release, a home reversion plan, or a lifetime mortgage.
The most popular, a lifetime mortgage, allows you to continue to own 100% of your home, and the loan is secured on your property.
With a home reversion plan, you sell all or part of your property in return for a tax-free lump sum or smaller amounts over time, but you can continue to live in your home as a tenant, typically paying no rent.
Both types of plan will reduce the value of your estate and impact funding long-term care.
One of the main benefits of equity release for many people is that you’re not required to make any repayments if you don’t wish to, as the money you unlock, plus accrued interest, is repaid when
you die or move into long-term care.
However, there are plans that allow you to make voluntary payments, subject to certain limits, and you can choose the amount that suits you.
By doing this, you can reduce the amount of debt that is rolled up.
Early repayment charges may apply above a set value.
Is equity release right for me?
It’s a requirement to get advice before proceeding with equity release.
An advisor such as Age Partnership, who is a member of the Equity Release Council, will take you through all your options with a no-obligation quotation to ensure it is the right decision for your individual circumstances.
Your advisor will take the time to understand your needs and assess how your entitlement to means-tested benefits could be affected, now or in the future.
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It could be that downsizing, borrowing money from family, or taking in a lodger could be a more suitable way to raise funds.
You may be concerned about passing debt on to your family, but equity release plans covered by the Equity Release Council come with a no-negative-equity guarantee, which means your estate
will never owe more than your property is worth when it is sold.
There are also plans that allow you to safeguard a percentage of your property’s value so that you can pass this on to your loved ones.
Equity release requires paying off any existing mortgage.
Through Age Partnership, initial advice is provided for free and without obligation.
Only if your case completes would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and
Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.