Using the value in your home to top up your retirement income
First of all, what is “equity” in relation to property? It is the net value you have in your home, which is its current open market value less any mortgage or other debt secured against it. Simply put, if the current market value of your home is £450,000 and you have an outstanding mortgage or other loan secured against it of £150,000, then the “equity” is £300,000 (£450,000 minus £150,000).
Equity release is a great way to get a cash lump sum from the value of your home without having to move, and you may be able to do this even with an existing mortgage. A lifetime mortgage is a loan against the equity in your property which doesn’t have to be repaid until you die or you move into permanent residential care. But it does come with risks and restrictions, so it’s essential that you take expert advice.
How does equity release work?
There are currently two types of equity release products available:
- A lifetime mortgage
- A home reversion plan
A lifetime mortgage is different from a standard mortgage and could be an option if you are over 55 (or both of you are, if the property is jointly owned). You borrow some of your home’s value at a fixed or capped interest rate which compounds over time. The loan, plus the interest, is repaid from the sale of your home when you die or move into permanent long-term residential care. You may be able to transfer the loan if you move.
With a home reversion plan you sell all or part of your home to the lender. When you die your home is sold and the proceeds are split, based on the percentage you and the lender owns. So if your property value rises significantly, you only benefit from the growth on your share. With this type of product you (or both of you if the property is jointly owned) need to be over 65.
With both strategies you still own your home and can continue to live in it. But you should make sure you understand the difference between the two and the impact each will have on your estate when you die. Please contact us to find out more and get a personalised illustration.
Is equity release safe?
The UK’s equity release market is fully regulated by the Financial Conduct Authority (FCA). Talis are also members of the Equity Release Club and we only work with companies that subscribe to the Safe Home Income Plan guarantee supported by the Equity Release Council, which means they must adhere to a strict code of conduct designed to protect consumers.
These safeguards include a “no negative equity guarantee”, meaning you will never owe more than the value of your property. On top of this, you are protected by “security of tenure”, which gives you the right to live in your home for life.
So yes, it is worth considering as a boost to your income or retirement funds so you can enjoy life now. But you must take financial advice before applying, which we are authorised to help with. Please give us a call.