Equity Release – Funding the cost of retirement

Date online: 05/03/2011

There has been much written about the issues surrounding pensions in the UK and how this might affect us in the future, but it is already a daily challenge faced by millions of retired Britons.
Equity Release is a solution that could assist many retired people who currently manage on a small pension and limited savings and maybe struggling to manage financially whilst living in their most valuable asset. Alternatively it can be accessed by homeowners who wish to enhance their lifestyle. Stricter regulations and tighter control surrounding the provision of Equity Release now make it an attractive option for many people.
Sometimes called lifetime mortgages or home reversion plans, these schemes are a way of releasing either a lump sum and/or a regular income, giving you some much needed cash to use as you wish or to simply make daily life more comfortable. Equity Release essentially lets you borrow money against the value of your home and allows you to continue to live there for as long as you like with the debt being repaid from the sale proceeds after your death or if you have to go into long term care.
In most cases you will need to be at least 55 years old and own a property in reasonable condition and have no outstanding mortgage (or you will need to use the equity release money to pay down the existing loan).
Equity release plans – the benefits

• You don’t have to move house or sell your home to unlock equity. With reputable equity release schemes there is a rock-solid guarantee that you will be able to continue to live in and enjoy your home until the day you die or have to go into long term care and in many cases you will still be able to leave something of the property’s value to your family. If you don’t have children or family to leave your property to, then equity release might seem an even more attractive concept.

• Equity Release can also be used to pay for care bills without having to sell your family home, taking away the additional stress at what can be a traumatic time.

• They can provide a lump sum, a regular income or both. The amount available will depend upon both your age and the property value.

• Money released from the value of your principle residence is free of tax, although if the cash is then invested there may be tax to pay on any income or growth.

• The value of many properties means that Inheritance Tax is no longer something only the rich have to pay or worry about and Equity Release plans are a perfectly legal way of mitigating inheritance tax. These funds could be used, for example, to give a child or grandchild the deposit to buy their own property.

Equity release plans can be complicated products and are a major step for many people, they may also affect your state benefit entitlement. Your house is almost certainly the most expensive asset you own so it is important that you seek guidance and both Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, recommend you get independent financial advice before proceeding.

If you would like more information on Equity Release then please do not hesitate to contact our Conveyancing team. 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.