Equity release represents a relatively simple and straightforward way of unlocking the capital tied up in your home, so that you may use the proceeds to fund a more comfortable lifestyle in your older age.
In its Autumn 2017 market report, the Equity Release Council comments on a steadily increasing demand for equity release products and a steady growth in the number of different providers (with 78 different equity release plans already available by August of this year).
How much can be borrowed?
The amount of capital you may unlock from your home depends on a number of factors, of course, but one of the simple first steps is to use an equity release calculator offered by many providers.
Typically, a simple, easy to use equity release calculator asks for your estimated value of your home, the amount of any outstanding mortgage and the age of the youngest homeowner.
Most providers have a minimum requirement for the home’s current market value (but this is likely to be as low as around £70,000) and the amount of any outstanding mortgage is important, since this needs to be repaid, before equity release is completed. The age of the youngest homeowner needs to be 55 in the case of equity release based on a lifetime mortgage scheme or 60 if your chosen option is a home reversion scheme.
The more popular option – and the one on which most equity release calculators are based – is the lifetime mortgage. This is effectively a mortgage loan backed by the value of the equity you own in your home, but on which no monthly installments need to be paid. Instead, a compounded rate of interest is rolled up over the term of the loan and repaid only when you die or move into long-term care.
The alternative is a home reversion scheme, in which the provider purchases a percentage of the home itself but grants a free lifetime lease to the homeowners. When the last of the homeowners die, the house is sold and the proceeds split in the same percentage between the home reversion provider and the homeowner’s designated survivors.
Pursuing your interest in equity release
An online equity release calculator may give you only an initial, broad indication of how much you might borrow.
Your initial interest needs to be followed up with a more detailed discussion with a qualified, independent financial adviser (authorized and regulated by the Financial Conduct Authority) specializing in the provision of equity release schemes.
Typically, this likely to involve:
- an appointment with the financial adviser to discuss the equity release options available to you;
- a discussion about your circumstances and the opportunity for you to ask the questions you need answering;
- confirmation of your eligibility to participate in an equity release scheme; and
- advice on the amount you may borrow – supported by a surveyor’s professional valuation of the home you (and your partner) own.
If there is still an outstanding mortgage balance on the property owner, this needs to be paid off first, before the equity release is completed, although the funds from the release may be used to pay off any outstanding mortgage.
The time is taken between making your application and the release of the fund may vary according to your personal circumstances and from one provider to another. Typically, this is likely to take between 8 and 12 weeks.