Welcome to the first of many Blogs on the Advice Guru website explaining key aspects of Later Life Lending. In this Blog, we will be delving into the world of equity release. This concept might seem complex at first, but holds immense potential for homeowners over the age of 50. We will start by breaking down what equity release actually means. Then we will follow with a detailed explanation to help you understand its workings.
We will then explore why equity release is important and the benefits it can bring to your financial planning. This blog will also provide an overview of the key aspects of equity release, along with important considerations you should keep in mind.
Our aim at Advice Guru is to make this subject as simple and accessible as possible. This means whether you have been a homeowner for years, or a new borrower, you have options.
What is Equity Release Audio
What is Equity Release Video
How does equity release work?
Equity Release refers to products which enable homeowners over the age of 50 to release some of the capital (money) tied up in their home. You must also meet certain equity release criteria to be eligible.
The amount you are able to borrow is calculated by lenders using the age of the youngest homeowner and the value of the property. Generally, the older you are, the higher the amount you can borrow. Additionally, there are some lenders who will lend more money if you suffer from certain illnesses or lifestyle conditions (eg a smoker).
Homeowners aged in their 50s are likely to be able to borrow between 20% and 30% of the property value, increasing to 30% to 40% in their 60s and 70s. Homeowners over the age of 70 may be able to borrow between 40% and 50% of the value.
As a general rule, interest rates increase with the higher loan compared to the value of your property you decide to borrow. These interest rates vary between lenders and most are fixed for the life of the mortgage.
How do I apply?
The first stage in the application process is finding out more about your options. This is why we have created Advice Guru. Our Customer Learning Zone will guide you through the main parts of the process.
Once you have an initial understanding of the options available to you, it is time to speak to an Advisor. We have Advisors who can speak to you face-to-face, by phone or video call.
The Advisors will listen to your needs, ask you some initial questions and then provide you with guidance. This process will move at a speed you are comfortable with and will not cost you anything. No fees are payable until the day you receive any funds you apply for.
If you do decide to proceed with an application, you will be given various documents to read and sign. These ensure your understanding of the process and details of taking out a loan on your property. You will also need photographic identification and your last three months bank statements.
Once your Advisor has given advice that you are happy to proceed with, they will then complete an application with the chosen lender. This then triggers a surveyors valuation visit, followed by a mortgage offer. Your Advisor will also work with you to choose a specialist Equity Release solicitor to go through the legal process of obtaining your loan.
How long does it take to release equity?
The actual process from application to completion (when you receive the funds) takes around 6-8 weeks on average. An application for Equity Release is actually a quick process with the final form taking less than an hour to complete and the survey being instructed immediately the application is received by the lender.
Following the survey, most lenders then issue the mortgage offer in less than a week. The legal process comes next which can take 4-6 weeks. We do not want the process to be rushed as it is vitally important that you have researched all your options and been given time to reflect on which is the best option for you. The pre-application process can take as long as you need it to. Many clients research and consider their options for months, if not years. This is very wise and the main reason for us creating the Customer Learning Zone.
Different types of equity release
Lifetime mortgage
This is the main type of Equity Release with over 99% of cases identified by the Equity Release Council being Lifetime Mortgages. These now allow homeowners to pay the loan interest which over the long term can prevent the interest build up. This can be a key factor for those looking for a way to borrow money that does not lead to negative equity and enables them to either pay care fees or leaves an inheritance to family.
Home Reversion Plan
A Home Reversion Plan is an unusual type of Equity Release now, however it is the product that most people associate with the term. With a home reversion plan, you sell part or all of your home but can live there rent-free until you die. Most homeowners that are new to Later Life Lending think that this is the case with all types. As you will learn from this website, it is not.
Advantages and disadvantages of releasing equity
Advantages
-any funds released from your property are tax free
-you can stay in your own property for as long as you want
-the funds you raise can be used for virtually any purpose
-there is no requirement to pay monthly payments with most deals
-you will never owe more than your property value
-new products allow you to repay the interest and capital if you want
-you can take an initial lump sum and a ‘drawdown amount’ which you can access when needed and only pay interest on when received
-loan amounts and acceptance are not based on affordability and credit scoring rules
Disadvantages
-taking out equity from your property can reduce the value of your estate
-if you decide not to pay the interest, the interest will compound which can increase the debt relatively quickly
-if you receive means tested benefits, taking a lump sum could affect these
-you will have fees to pay to set up the mortgage. These include legal, broker, valuation and lender fees
-most deals charge Early Repayment Charges (ERCs) for a period of time
Is equity release the right choice for me?
This is the key question. Only by researching ALL of your options, having your questions answered and receiving professional advice from a qualified and experienced Advisor can you make a decision.
Start with our Customer Learning Zone, then contact us with any questions you have. Having no obligation, no cost initial advice is key to making the right decision for you.
Conclusions
It remains crucial to consider all options when considering raising money from your property. An Equity Release product remains the most common one, however there are many other ways to release funds from your property. A good Financial Advisor or Mortgage Broker with the relevant qualifications will be able to discuss all the alternative options. Research, learning and liaising with a trustworthy professional are all key to this.
Leave a Reply