UK Equity Release: Read BEFORE Equity Releasing

Equity Release done wrongly can:

  • Increase your debt to unmanageable levels
  • Affect your Benefits 
  • You may have to Set Up Fees
  • You may have to pay Exit Fees
  • You could end up with Negative Equity in your home

Short on time, here’s the bottom line:

Equity Release isn’t offered by every mainstream lender. The most reputable equity release is offered by Aviva, Nationwide Building Society, Legal & General, Saga and LV. Interest rates vary between lenders but should be somewhere between 3-5%.

Which Equity Release is best?

One of the best safest options to release some of the value of your home, is the ‘Nationwide Equity Release Lifetime Mortgage’. 

It offers several key features like a downsizing guarantee, fixed interest rates, a no negative equity guarantee and has zero fees associated with it, plus it offers a £1,000 cash back offer. 

How does Equity Release work? 

This is a question everyone asks as most people have heard of equity release but not many fully understand it or how to do it correctly.

An equity release from your property, in a nutshell enables you to withdraw tax free equity [cash] from it. It’s a great option then for people who want to unlock some of the value from their home whilst remaining living in it. Equity release is particularly popular with people over 55 years of age. 

You can equity release and take that cash as one lump sum or across multiple payments, whichever suits you. Sound good?

The next question is:

What is the catch with Equity Release?

Well there should be no catches if you fully understand Equity Release, how it works and have done it with a reputable company. 

The idea is you can release some cash from your home but this money must be repaid at some point. Is that a catch? Repayment could either be when you sell your home, move into long term care or when you pass away. When you equity release you don’t need to have a definite answer of when you will repay the money either.

How much Equity can I take out?

In most cases you can use equity release to take out up to 80% of the value of your home. In most properties you own as an investment, like Buy to Lets (BTL) it’s usually only up to 70%. 

Remember equity release comes with interest much like a mortgage does, so when you repay the amount you have released in equity, it will typically be with added interest. 

Who does Equity Release?

Equity release is available to nearly everyone with a home and some equity in that home. That said it best suits certain people at certain stages of their life. 

For example one scenario where equity release really could be a viable option and could work well for you, is if you are in your later years and want to stay in your own home rather than sell it, as you don’t currently wish to move or downsize yet. There could be a number of reasons for this. 

Releasing equity then could provide you with a cash lump sum and the security to see you through the next stage of your life financially. Repayment of this lump sum is simple, it can be done when you come to sell the property, or after you have passed away. It can even be done before this and repaid early if you choose to. 

The money from releasing equity could be used for a once in a lifetime holiday, placed into savings or an investment or used to renovate the property. 

Using the money to remodel your existing home for ‘later life living’ is very popular and could add significant value to the property. Things like adding a downstairs bedroom and or a downstairs wet room bathroom are all options to consider.

Another scenario where equity release could work for you is if you own your own home but require care in a care home. Instead of obtaining the equity release in one lump sum another option could be to receive regular payments. 

These payments could then be used to pay the care fees. This, if you have any savings, leaves your savings untouched for added security and instead uses the value of your home to your advantage. 

Equity Release with an Existing Mortgage

Yes it is possible to still equity release, usually up to 80% LTV – this is best described with an example:

Lets say your home is worth £200,000 and you owe £100,000 on your current mortgage. 

You could equity release up to £60,000. This would mean you owe a total of £160,000 [equity release plus current mortgage] and that equates to 80% of the value of your home. Or 80% LTV [Loan To Value].

Equity Release versus Mortgage

Is it better to equity release or to mortgage? It depends entirely on your circumstances. Whilst interest rates are typically lower for mortgages then for an equity release. You maybe at an age where it’s not even possible to obtain a mortgage on your home. This leaves lots of people frustrated as they can own their home, sometimes even outright but cant borrow against it. This makes equity release the only really viable option for people to unlock some much needed cash.

It is worth pointing out here that Nationwide Building Society do offer mortgages specially for people over the age of 55 called a ‘Later Life Mortgage’ and it’s about time too. Too many people for too long have been shunned from mortgages due to their age. The retirement age for many is now 68 and many people plan to work into their seventies so a mortgage product to service this was long overdue and now Nationwide has it. 

Alternatives to Equity Release

Home Reversion

This is where you sell all or part of your home to a provider and receive the sale proceeds as either a tax free lump sum or as regular cash payments.You are then able to stay in your home, rent free for the rest of your life.

Negatives of Home Reversion

These include, not getting full market value for your home, as you are able to remain in your home for the duration of your life, the provider seeks to take protection against any negative movements in the value of your home.  

A mortgage however will always give the homeowner a current market valuation and as such proves a more popular option than home reversion for many.

A Lifetime Mortgage

Whilst this is still actually equity release it a different type of equity release. Firstly it’s offered by Nationwide Building Society so it is very safe as Nationwide is one of the largest mortgage providers in the whole of the UK.

With the Nationwide ‘Equity Release Lifetime Mortgage’ this can unlock the value of your home but why its so popular is because you don’t have to make monthly repayments unless you choose too. Instead those interest payments can simply be added onto the total amount when it’s repaid. It is usually repaid when the last borrower dies or moves into long term care. 

Benefits of the Nationwide Equity Release Lifetime Mortgage

No Fees – so that’s no valuation fees, no product fees or fees for advice. 

Fixed Interest – the interest rate is fixed for life

No Negative Equity Guarantee – Nationwide actually guarantees that when your property is sold if what you owe is more than the property is worth, they don’t ask whoever is inheriting your estate to make up the extra. This is a fantastic way to safeguard your estate and/or children from any financial surprises..

Protection if Downsizing – after 5 year you wish to downsize to a property of a lesser value you can repay the money you owe with no early repayment charges. 

£1,000 cashback offer when you take out an Equity Release Lifetime Mortgage

You can apply simply online

Equity Release Martin Lewis

Martin Lewis the ‘Money Saving Expert’ has become a financial guru to millions of us, helping us save on mortgages, loans and credit cards. So what does he say about Equity Release? Well Martin gives 4 very good quick tips:

  • For security and protection ensure the equity release company you choose is a member of the Equity Release Council.
  • Seek advice before hand 
  • Don’t borrow the full amount in one go – this will make it more expensive in the long run as the interest has longer to compound.
  • Check this won’t affect any benefits you’re entitled to.

Will Equity Release Affect my Benefits?

Most commonly, equity release can affect Pension Credit and Council Tax Reduction. Pension Credit is means tested and if you equity release a large cash sum this could then affect your entitlement. 

It does not however affect Disability Benefits as this is paid regardless of income or money you have. 

Nationwide building society has advisors to review your benefits situation and talk you through your options if you are looking to apply for a Nationwide Equity Release Lifetime Mortgage. It’s also possible to apply for Nationwide mortgages online.

Equity Release Tax Implications

Its actually tax free whether it’s taken as a cash lump sum front , or a smaller upfront cash sum with a drawdown over many decades. 

Equity Release – what happens when someone dies?

Potentially nothing, for instance with the Lifetime Equity Release Mortgage from Nationwide they state: 

‘’the loan is repaid when the last borrower moves into long term care or dies and your home is sold. Any money left over is passed on to the people you name in your will.’’