EquityDrive - Can You Take Money Out Of Your House?

Equity Release has been around for many years. It has become more attractive over recent years because house and property prices have grown year on year by double digits – which is more impressive than many other investment tools.

Many people who bought houses in the 80s and 90s before the boom started had a small mortgage and now live in a property with a significant value. Many people over 55 also have grown up children who won’t be reliant on inheritance from a parent when they die. In fact, one could argue releasing some of the money and giving to your children as a deposit for a house would be more useful for the children now that waiting until both parents have died.

Some people have always had an ambition to buy a boat, caravan, holiday home etc. – why wish when you could release some of the money from your property? A good thing to remember is you may borrow a small sum and might find over the coming 15 years your house has increased in value by that amount meaning technically you’re no worse off.

In this Drive we show you the principles behind Equity Release, where to go to get advice and the different types of options. Equity release can be extremely advantageous but also can erode your hard-earned money if you don’t educate yourself to a degree you can choose a person or company who can give you professional advice.

We can think of so many situations whereby people buy a product or service and implicitly trust the advisor or company and, in some instances, abdicate responsibility for taking out the service or product. The number of times we have heard people say; I didn’t have a clue what he was saying but I trusted his decision. Never sign anything unless you understand everything connected to the product or service, there’s a lot at stake.

Equity Release Facts

1 times
income

is what the average house now costs in the UK

1
minimum age

for a lifetime mortgage

1 %
UK home owners

will still be paying a mortgage when they stop earning according to online broker L&C Mortgages

£ 1
minimum

is normally the lowest house value that will be considered

Some facts about equity release

 Equity Release is a way of getting at some of the wealth tied up in your property. Not only that if property prices continue to grow then each year this can have a positive impact on your situation. In the modern day the need for our children to receive a large inheritance is less. In fact, receiving cash earlier could have greater benefits; deposit for a house or support with grandchild care etc. There are two main types life mortgage and home reversion plan. In both cases the money is yours to do as you want and it can enhance yours or your family’s lifestyle.

Different Types of Equity Release

Lifetime Mortgage

This is the most popular form of equity release.  It’s a mortgage secured on your home with the amount borrowed calculated based on the youngest homeowner and the value of the property. 

Often there are no repayments and the interest is ‘rolled up’ over the full term, so you pay nothing, but the interest is compounded and builds up.  The loan is repaid when you die or move into a care home.

Some companies allow you draw down money at different times, and others allow you to pay off some or all of the interest as you go.

In all cases if you have poor health you will get better rates.

Home Reversion

These were the first type of equity release, and their popularity has fallen and less companies now offer these. 

You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.

These were the first type of equity release, and their popularity has fallen and less companies now offer these. 

You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.

Retirement Mortgages

These are similar to an interest only mortgage, but 

(i) the loan is paid off when you die or move into long term care

(ii)you just have to prove you can make the interest payments

There is no minimum age and you only pay the interest so monthly payments are lower.  However, you have to prove you can afford the payments, and then keep them up, or your home is at risk,  Your home is sold off once you die or go into care.

These are available from traditional mortgage lenders including banks and building societies.

Martin Lewis on Equity Release

Martin Lewis on Equity Release

This short video is from This Morning

The box below shows some information on equity release.  Hover over it and it will switch to show you some of the pitfalls with equity release.  Click the button on the back to see YouDrive’s view!

"None are so old as those who have outlived enthusiasm"
henry david thoreau
Henry David Thoreau
Poet & Philosopher

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See what other things can help

More information

Money Advice Service information on equity release

The Equity Release Council is a trade body which represents the sector and promotes standards for its members

AgeUK has a section on equity release

The Equity Release Supermarket offer a full service

The Personal Finance Society  have a factsheet on equity release

Legal and General have a guide on lifetime mortgages – download it here

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