Information about Equity Release Part 1

Equity release lets you access money that is tied up in your property. You can then use this money to improve your quality of life, whether you want to stay in your current home or move to another one.

So, for instance, if your property is valued at £250,000 and you still have an outstanding mortgage of £50,000, that means you have £200,000 in equity. On the other hand, if your house is worth £250,000 and you have paid off your mortgage, it means you have £250,000 in equity.

If the value of your home is not enough to pay off the outstanding mortgage on it, then you will be in negative equity. It also means there is no positive equity to cash out.

In this two-part article, your trusted conveyancer in Manchester gives you a closer look at how equity release works and why you should know more about it:

What Is an Equity Release?

Equity release simply means releasing the equity you have in your home to pay off the outstanding mortgage. It allows you to access the cash that you have in your home. As a homeowner, you need to have at least 50% or 25% equity in your home to be able to qualify for equity release.

However, it is essential to note that when you take out an equity release plan, the property will cease to be your primary residence and become a secondary residence. As a result, you may lose certain state benefits such as the Government’s help to buy scheme and the winter fuel allowance for pensioners.

Equity release plans can also increase your tax liability. This is because you will now be liable to pay CGT (Capital Gains Tax) on the money you withdraw.

What Are the Different Types of Equity Release?

Equity release schemes are designed to help people retire from their main home or help them gain access to their home’s equity if they can no longer live there. The two types of equity release schemes are lifetime mortgages and home reversion schemes. A report from the Equity Release Council shows that lifetime mortgages were the most common type of equity release in 2018, with 65% of customers choosing this type of plan; only 1% of customers choose a home reversion scheme, while 34% chose a lump sum plan. 

Home Reversion Schemes

A home reversion scheme is a type of equity release plan that you move into your current home, usually as a rental, but the property will pass on to your loved ones when you pass away. If you die before the reversion plan ends, your loved ones will be able to take over your home and continue paying off the mortgage.

Lifetime Mortgages

A lifetime mortgage is an equity release plan where you are given a lump sum of cash. You will then be required to pay the money back throughout your lifetime. This type of plan also allows you to release the equity in your home over time. A lifetime mortgage is an excellent way for homeowners to convert their property into cash so that they can enjoy the rest of their lives in comfort.

How Much Does Equity Release Cost?

Typically, a lifetime mortgage will cost you between £12,000 to £30,000, while a home reversion scheme will cost you between £25,000 to £80,000 depending on your age, the value of your home, and the interest rate.

Equity release plans typically last for 25 years, and the amount you will be paying back will be between £300 and £600 per month.

Getting a quote is usually straightforward, painless, and quick. You will only have to provide some basic home information and the size of your mortgage. You will then have to answer some questions regarding your retirement and other lifestyle choices. The company will then present you with a quote for the equity release plan.

Conclusion

If you are in a situation where you know that your current home is not enough to pay off your mortgage, then an equity release plan is a good option for you. You will be able to use the money in your home to relax and enjoy your retirement the way you want.

In the second part of this two-part article, our residential conveyancing experts are going to answer other questions you may have about equity release. 

Looking for quality conveyancing services? Conveyancing experts can help you. We provide reliable services to clients in the U.K. Contact us today so we can assist you!

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