Shaking the magic money tree
If you are 55 or older, it could turn some of your home’s value into cash, without forcing you to relocate; but it’s no magic money tree, as plans may be expensive and often inflexible.
Two ways to release equity
There are two main types of equity release: lifetime mortgages and home reversion plans. With a lifetime mortgage, you borrow a percentage of your home’s value but retain ownership. Under a home reversion plan, you sell an agreed proportion, or all of your home to the plan provider. Both types are subject to Financial Conduct Authority (FCA) regulation and each has its pros and cons. Sandringham does not currently offer advice on home reversion plans. In parallel with FCA regulation, industry standards are set by the Equity Release Council (ERC). Equity release products must be safe and reliable, and recommended only when suited to a client’s needs by a person qualified to advise on them.
This mortgage is for life (usually)
Like an ordinary mortgage, a lifetime mortgage is secured against your home; you still own that and you or your beneficiaries can still gain from any increases in value, offset by interest accruals. The plan releases a percentage of your property’s value as a lump sum. This may be a one-off payment, but drawdown schemes let you take an initial sum, followed by further amounts within a pre-set limit when needed.
Home reversion means selling a stake in your home
Home reversion involves selling all or a proportion of your home in return for cash, on the basis that you can continue living there, generally for the rest of your life, or you move into long-term care. Home reversion plans aren’t loans, so there’s no interest accruing. However, if property prices rise, you only benefit according to the proportion you still own.
Equity release standards
The ERC sets out standards asking members to act with professionalism and integrity, providing trusted, transparent, tailored, thorough advice and support – whether it is through product design, how advice is provided or how people are treated when they decide to take out a product.
Professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should involve your children and dependants from the outset.
To understand the features and risks, ask for a personalised illustration.