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Residential Property

Options to release equity in your property.

House with coins coming out of the front

Monday, September 4, 2023

Equity release is a way to unlock the value of your property and turn it into cash. You can do this via a number of policies which let you access – or ‘release’ – the equity (cash) tied up in your home, if you’re 55+.

You don’t need to have fully paid off your mortgage to do this.

As a rule, you can either take the money you release in one lump sum, or in smaller amounts over time (known as drawdown), or a combination of both. In 2022, more than £6.2 billion of property wealth was turned into cash via equity release – double the equivalent amount in 2017.

The products available to free up cash fall in to two different options:

  1. Lifetime mortgages – for those aged 55+

You can either take the money all at once in a lump sum, or you can take it in smaller chunks as and when you need it – something known as drawdown. If you choose the drawdown option, interest will only be charged on the cash you’ve actually taken, and not on the money you’re yet to draw down.

With both forms of lifetime mortgage, if you don’t make any repayments then the interest will compound rapidly, as the amount you owe is increasing all the time. These days however, most lifetime mortgages do allow you to make repayments, be that repayment of the capital or just the interest, meaning you can reduce the overall cost. Typically there’ll be a cap on the amount you can overpay by, normally 10% of the loan value each year.

2. Home reversion plans – for those aged 60+

Here a provider pays you a tax-free lump sum for a portion of your home at below market value. You can then live in the property (rent-free) until you die. When it’s sold, the proceeds are split based on the percentage you own and the lender owns. So if your property value rises significantly, so does the amount it gets.

What are my options if I’m under 55?

Equity release is only available to those aged 55 and over. If you’re close to 55, you may feel like you’re in a position where you can wait until then. However, if you’re a homeowner who’s under 55 and in more pressing need, it’s worth speaking to a mortgage broker about the possibility of re-mortgaging, or contacting a financial adviser if your situation is particularly complicated.

Before applying for a lifetime mortgage or home reversion plan, you’ll first need to seek advice from a qualified equity release adviser. This is a requirement of the Financial Conduct Authority. A qualified advisor will be able to compare equity release deals from across the market. This means you’ll get the best advice and be recommended products tailored to your circumstances. Be aware that releasing equity can affect the benefits you’re entitled to, for example, pension credit, universal credit and others. So if you’re entitled to any such payments, check the impact of equity releasing first.

Independent legal advice is a requirement of the equity release process and here at Samuel Phillips our conveyancing department is on hand to assist with and deal with any queries you may have about equity release.

If you are looking for a quote for an equity release, please do not hesitate to get in touch today on 0191 255 0255 or email conveyancing@samuelphillips.co.uk

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