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Equity Release
Introduction: What
is equity release?
Equity
release plans allow you to release tax-free cash from your
home to boost your finances in retirement. The two main types
of equity release plans available are lifetime mortgages
and home reversion plans. Both types of equity release plan
allow you to:
-
Safely release equity from your home.
-
Spend the money as you wish.
-
Make no monthly repayments.
-
Stay in your home for life.
Key Retirement Solutions is our colleague
firm for looking after equity release cases. Key are probably
the UK's leading firm of independent financial advisers specialising
in equity release. They offer independent financial advice
on a wide range of equity release plans from across the range
of providers, to find the best equity release solution for
your retirement. They guide our clients through the different
types of equity release plans available to find the best
possible plan for your needs. [top]
How to find the right
equity release plan
There are currently over 40 equity release
plans to choose from, and you can save your estate thousands
of pounds if you choose the right one.
If you are thinking about taking out an equity
release plan, there are points to consider which you should
read through carefully.
This is an equity release plan. To understand
the features and risks, ask for a personalised illustration. [top]
Types of equity release
plans
There are four types of equity release plan
currently available:
-
Lifetime mortgages.
-
Drawdown plans.
-
Home reversion plans.
-
Home income plans.
Each type of equity release plan can help
you to make the most out of your retirement by safely releasing
equity from your home to spend entirely as you choose. All
equity release plans available from Key Retirement Solutions
come with a set of guarantees to ensure your safety:
-
No monthly repayments to make in your lifetime.
-
Stay in your home for as long as you want.
-
Move if you wish (subject to provider criteria).
-
A no negative equity guarantee so the amount owed
will never exceed the value of your home.
-
A wide choice of equity release plans.
There are over 40 SHIP approved equity release
plans from various providers to help with your retirement
planning, which a specialist independent financial can guide
you through.
Key only ever recommend equity release plans
which have been approved by SHIP (Safe Home Income Plans)
which means that every equity release solution we offer meets
the strict standards set by SHIP to ensure your safety. [top]
1. Lifetime mortgages
A lifetime mortgage is a form of equity release
plan where a loan is secured against your property to provide
you with a tax free cash lump sum or a regular income to
spend as you wish, with no monthly repayments to meet.
Interest is added to the lifetime mortgage
loan throughout your lifetime, accruing at a fixed or variable
rate. The loan plus interest is eventually paid back when
the home is sold, usually when you move into long term care,
or when you and your partner die. You can typically release
between 18-50% of the value of your property with a lifetime
mortgage, depending on your age.
Advantages of a lifetime mortgage
-
A lifetime mortgage gives you the choice of a cash
lump sum or income with no monthly repayments to meet.
-
You retain full ownership of your home.
-
Lifetime mortgages are available to younger people
(aged 55+).
-
No negative equity guarantee.
-
Some lifetime mortgage plans let you guarantee
an inheritance for your family.
-
All equity release plans are regulated by the
Financial Services Authority.
Disadvantages of a lifetime mortgage
-
The amount you leave as an inheritance will be
reduced.
-
The interest applied can grow quickly as it is
compounded.
-
You can't usually raise as much money with a lifetime
mortgage as you could with a reversion plan, especially at younger
ages.
-
If you repay the lifetime mortgage early, you may
have to pay an early repayment charge.
Lifetime mortgages have become a highly popular
form of equity release plan over the past few years, prompting
many providers to offer a variation of a lifetime mortgage
called a drawdown lifetime mortgage which allows you to release
equity as and when you need it, rather than taking a lump
sum or regular income.
This is a lifetime mortgage. To understand
the features and risks, ask for a personalised illustration. [top]
2. Drawdown plans
A drawdown lifetime mortgage has the same
advantages and disadvantages as a regular lifetime mortgage,
as well as a few more that are unique to this kind of equity
release plan.
The main difference with a drawdown lifetime
mortgage is that you don't request the full sum of money
available to you immediately. Instead, you decide on a maximum
amount of equity you want to release, and 'drawdown' the
cash in stages when you want to.
Advantages of a drawdown lifetime mortgage
-
You can drawdown cash by making withdrawals as
and when you need them, or you may be able to request a monthly
income.
-
You only pay interest on the amount of equity released,
so interest could accumulate more slowly than with a regular lifetime
mortgage.
-
You are in control of your money as you can release
cash when it suits you.
-
You retain full ownership of your home.
-
Drawdown lifetime mortgages may be available to
younger people (aged 55+).
-
Some drawdown lifetime mortgages let you guarantee
an inheritance for your family.
-
All equity release plans are regulated by the
Financial Services Authority, including drawdown plans.
Disadvantages of a drawdown lifetime mortgage
-
Interest rates are usually higher on a drawdown
plan than they are on a standard lifetime mortgage.
-
If you want to increase the amount of equity released
beyond the original amount agreed, you would normally have to apply
for a further advance, which is not guaranteed.
-
There are restrictions on the minimum amount you
can release.
-
The amount you can leave as an inheritance will
be reduced.
-
The interest applied can grow quickly as it is
compounded.
-
You can't usually raise as much money through
equity release with a drawdown lifetime mortgage as you could with
a reversion plan, especially at younger ages.
-
If you repay the lifetime mortgage loan early,
you may have to pay an early repayment charge.
This is a lifetime mortgage. To understand
the features and risks ask for a personalised illustration. [top]
3. Home reversion
plans
With a home reversion plan you sell part or
all of your home to a reversion plan company in exchange
for a tax-free cash lump sum and a guaranteed lifetime lease
with no monthly repayments to meet.
You stay in your home rent free for as long
as you choose and are able to guarantee an inheritance to
your beneficiaries. Both you and the reversion plan company
share in any increase in your property's value, providing
you have not exchanged 100% of its value.
Advantages of a home reversion plan
-
You are able to guarantee an inheritance.
-
There are no monthly repayments to make.
-
You benefit from any increase in value of the percentage
of the property that you still own.
-
Reversion plans may be available to those aged
55+ and you can typically raise more money from your home at a
younger age with a reversion plan than a lifetime mortgage would
allow.
-
The older you are, the more money you will be able
to release with a reversion plan.
Disadvantages of a home reversion plan
-
Typically, you do not receive the full market value
of the share of the property you sell because the reversion plan
company will give you the absolute right to live in it rent free
for the rest of your life, and will not get their money back for
a number of years.
-
The reversion plan company owns a share of your
home and will also benefit from any increase in value.
-
Reversion plans cannot usually be reversed as
you are selling part of your home.
-
The majority of reversion plan providers do not
guarantee further advances.
This is a home reversion plan. To understand
the features and risks ask for a personalised illustration. [top]
4. Home income plans
With a home income plan, equity is released
through a lifetime mortgage or a home reversion plan and
is automatically invested into an annuity that is built into
the plan, to generate an income for life. A cash lump sum
may be available in addition to an income, but the amount
may be restricted.
An annuity is a plan that guarantees a series
of payments in exchange for a cash lump sum. The income you
receive will depend on prevailing annuity rates, your age
at the outset and your gender.
Advantages and disadvantages of a home income
plan
The advantages and disadvantages of home income
plans largely depend on whether the money is released through
a lifetime mortgage or a reversion plan, however annuities
have their own set of pros and cons:
Advantages of an annuity
-
A lifetime annuity guarantees that the income
will be paid for as long as you live.
-
Income can usually be taken on a level or increasing
amount each year.
-
With a home income plan annuity, you can usually
get a higher income than would be payable from a stand alone annuity.
Disadvantages of an annuity
Annuity rates fall at times of low interest rates, and so they
have been falling for some time. For this reason lifetime mortgages
and home reversion plans have been the more popular choice in recent
years
Points to consider regarding
equity release
RPA and Key Retirement Solutions believe that
advice is only of value when it's independent. Equity release
can provide you with financial freedom in retirement, but
it's not always the right option for everyone.
Key's independent advisers will consider your
individual circumstances to tell you whether a plan would
be the most suitable option for your needs. It is also important
to consider the following points when thinking about whether
to release cash from your home:
-
All plans will reduce the value of your estate,
so it's important to involve your family and discuss your ideas
with them. We welcome your family to be involved in any of your
consultations.
-
Would your entitlement to state benefits be affected,
and if so, how would you feel about this?
-
Releasing cash from your home is a lifetime commitment
and the loan is only expected to be repaid upon your death or entry
into long term care. Early repayment charges may apply on some
plans if you want to repay the loan early.
-
You could sell your home and move somewhere cheaper
(but it could be tough and expensive to find somewhere attractive
and affordable).
-
You could ask your family for financial assistance.
-
You could consider other forms of borrowing, such
as loans or traditional mortgages (subject to affordability).
-
You could use other money you may have access to
such as savings or investments.
-
All plans approved by SHIP (Safe Home Income Plans)
allow you to move home if you wish. Any move will be subject to
the provider's criteria.
Key Retirement Solutions offer a full advice
and recommendation service for which they will charge a fee.
The fee is only payable if you take their advice, apply for,
and complete a plan. It is also only payable when you receive
your cash and is typically 1.5% of the amount released. Key
do offer a free of charge, no-obligation, initial consultation
with an independent adviser so that you can find out how
much cash you could release and whether a plan would be suitable
for you. If you choose not to proceed no fee will be charged.
Key offer independent financial advice on
a wide range of equity release plans, to find the best equity
release solution for your retirement. Key's independent advisers
are specialists in equity release and will apply their wealth
of experience and expertise to help you to consider all of
the above points, as well as talking you through the advantages
and disadvantages of the various lifetime mortgages and home
reversion plans available. [top]
Source: Key Retirement Solutions
21/08/07, edited by Mike Migan for the purposes of this site
Notes & Disclaimers
- Guides (which includes
all information, data and views expressed) on
this site are brief introductions, as such they
cannot be relied upon: full research needs to
be conducted or professional advice sought before
investment and financial decisions are made.
- In the case of new investments,
pensions, insurances or mortgages, literature
from the investment provider needs to be read
and understood: including product guides, key
features and illustrations, which give details
of product aims, benefits, risks, commitment
needed, charges and commissions, before financial
decisions are made and action taken.
- Guides published on
this site express the opinions of the authors
which may not always concur with our own if from
other organisations.
- Guides are published
by the permission of the authors and/or copyright
holders.
- Your home is at risk
if you do not keep up repayments on a mortgage
or other loan secured upon it, this can include
some forms of equity release. The FSA do not
regulate some types of mortgage.
- Past performance is
not an indication of future returns.
- The price of bonds,
properties and shares, income from them and investments
in them can rise and fall.
- Investments in bonds,
property and shares should be deemed mid to long
term, meaning at least five years. Early surrender
increases the risk of the investor receiving
back less than invested.
- Investments in capital
protected funds are only as good as the ability
of the investment provider and/or any guarantors
to meet their liabilities. A default on their
part may mean that the investor receives back
less than invested.
- Tax concessions and
legislation may change and reduce the benefits
of investments.
03/01/07
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