Equity release encompasses a variety of financial products designed to give people over the age of 55 access to the cash tied up in their homes.

You have the option to receive this released equity as a single lump sum, multiple smaller payments, or a combination of both. There are two primary options for releasing equity:

1. Lifetime Mortgage: With a lifetime mortgage, you can secure a loan against your property, provided it serves as your primary residence, all while maintaining ownership.You have the flexibility to set aside a portion of your property’s value for inheritance purposes. You can opt to make regular repayments or allow the interest to accumulate over time.

   The loan amount and any accrued interest are typically repaid by selling the property either when the last borrower passes away or moves into long-term care.

2. Home Reversion: In a home reversion arrangement, you sell part or all of your home to a home reversion provider in exchange for a lump sum or periodic payments.You retain the right to live in the property until your passing, though you are responsible for its maintenance and insurance. You can also safeguard a percentage of your property for future use, such as inheritance, by only selling a portion of it.

   The retained percentage remains constant regardless of fluctuations in property values, unless you decide to release more equity.

   Upon the last borrower’s demise or transition to long-term care, your property is sold, and the sale proceeds are distributed according to the remaining ownership proportions.

Lifetime Mortgages are the more commonly chosen option for later life lending. Typically, no repayments are required during your lifetime. Instead, the interest accumulates, increasing the loan amount over time.

Some lifetime mortgage products now offer the choice to pay off some or all of the interest or even the capital itself. These mortgages can vary in terms and conditions, just like regular mortgages differ between lenders.

On the other hand, Home Reversion enables you to sell a portion of your home to a provider while retaining the right to live there, often without rent. In exchange, you receive a lump sum or periodic payments, typically ranging from 20% to 60% of the property’s market value.

When considering a home reversion plan, it’s essential to assess various factors, including whether you can release equity in instalments or as a lump sum, the minimum age requirement, the percentage of market value you’ll receive (which typically increases with age), and the maintenance and inspection expectations for your property, which may vary among providers.

Both options have their pros and cons. Because of this, it’s important to speak with a specialist advisor who can help you decide what is the most suitable route for you. We’ve listed a few common pros and cons below:

Lifetime mortgages

Pros

1. Accessibility in Later Years: It allows you to secure a loan in your later years when many lenders are hesitant to lend to those approaching retirement or already in retirement.
2. Generous Loan Amount: You can obtain a substantial loan, often up to 60% of your home’s present market value.
3. Flexibility with Repayments: There is no requirement for compulsory monthly repayments.
4. Deferred Repayment: Repayment of the debt may only be necessary after your passing.
5. Versatile Use: You can utilize the loan funds as you see fit, including for retirement planning and other personal needs.

Cons

1. Property Eligibility: Not all properties qualify for this type of mortgage.
2. Rapid Debt Growth: The debt can accumulate quickly, resulting in high repayment costs.
3. Early Repayment Charge: Exiting the mortgage prematurely can be challenging due to early repayment charges
4. Inheritance Impact: You won’t be able to pass on your home, significantly reducing the value of the inheritance you leave behind.
5. Benefits Eligibility: You may no longer qualify for certain means-tested benefits, such as pension credits and housing benefits. While choosing a drawdown later life lending might help mitigate this, it’s crucial to consider the tax implications and its impact on your inheritance planning.
6. Fees: Fees: The loan approval process involves various fees, including administration, valuation, legal, and interest charges. If you decide to end your lifetime mortgage early, there may be additional early repayment charges

Home reversion scheme

Pros

1. Access to Substantial Funds: You gain access to a lump sum or drawdown loan, which can be a substantial amount.
2. Home Retention: The company is unable to compel you to sell your home while you continue to reside in the property.
3. Versatile Use of Funds: The money obtained from the plan can be utilized in various ways, often to enhance your quality of life during retirement.

Cons

1. Limited Equity Reflectance: The later life lendingd may not accurately represent the property’s true value within the reversion plan.
2. Forfeiture of Appreciation Rights: Upon selling the property in a reversion plan, the owner forfeits any future appreciation in the property’s value (or the portion included in the plan).
3. Costly Early Demise: If the planholder passes away shortly after starting the plan, it can be financially burdensome due to the discounted lump sum and initial costs, especially when used to purchase an annuity without a guarantee.
4. Constraints on Moving: While some schemes offer flexibility for the planholder to relocate, practicality may be limited. The need to repay a portion of the property value when moving to a smaller home, for instance, can make such a move challenging. Additionally, moving to sheltered accommodation might be refused due to limited resale opportunities.
5. Impact on State Benefits: Increased income or capital may disqualify or reduce eligibility for certain state benefits.
6. Non-Financial Benefit of Property Improvements: Any property improvements made do not directly financially benefit the planholder.

If you’d like to discuss more about later life lending, drop us a call or email and we’d be more than happy to help. Please note that for Home reversion plans, we act as introducers only