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If you are considering releasing equity from your property, it is important to understand how it works, the risks involved and the reality that the value of your estate will reduce.
The decision to release equity is one that needs thorough consideration and planning because while you may receive an instant, tax free cash boost, it will have an impact on your long-term plans and beneficiaries in your Will.
Equity release is a way of accessing money tied within your property without having to give up your home or move out.
It’s important to assess all options before deciding to release equity. It needs careful planning as they are a lot of consider not just how it affects your estate.
The numbers would suggest the equity release market is growing, according to the Equity Release Council (ERC).
They have released their latest quarterly report which outlines the equity release market has grown by 10 per cent in the last 12 months with a total of £636 million released.
This quarter has seen over 14,000 new and returning customers take out equity release loans, an increase of 10 per cent on this time last year.
An increase in equity release loans has been credited to a new lump sum mortgage as well as house price increases and product flexibility.
As noted above, you need to think carefully about releasing equity from your property. There are different types of equity release to consider and its important you understand them.
One equity release option is a lifetime mortgage. Typically, the most common form of equity release, it follows a similar pattern of a traditional mortgage, in which it is a loan secured against your home at a fixed or capped interest rate.
However, in this case, it would not need to be repaid until you pass away or move into residential care but the interest that is owed is accumulated and added to the loan once the repayment process begins.
You need to be at least 55 to apply for this type of equity release. If you are applying with your partner, you would both need to be the age required.
The other equity release option is a home reversion plan which allows you to sell part or all your home, but you still live in the property.
The reversion provider will give you a lump sum for a percentage of the property, depending how much you are offering. This is at a reduced rate, but they would then get a share of the proceeds once the property is sold.
You need to be over the age of 60 to apply for this form of equity release and any person living with you would need to sign a waiver confirming they have no rights to stay in the property if you do pass away or move into a care home.
A significant difference from a lifetime mortgage, the sum you get through a home reversion plan is dependent on the price of your property when you decide to sell.
Should you choose to go down the equity release route, you will need to consider the impact and implications this will have on your estate and what it means for your beneficiaries.
The value of your estate will reduce at a drastic rate because you have borrowed money from your estate. There is less value within the estate as a whole and your beneficiaries’ share is significantly smaller.
You would also need to revise your Will and remove the property you are releasing equity from as you cannot bequeath the property because it must be sold when you pass away.
It’s important you analyse all aspects of equity release particularly, if you want to leave property and want to maintain the value of your Will.
If you are considering equity release, it is always best to seek legal and financial advice. Speaking with Wills and Probate experts will give you an idea of what will happen should you decide, you would like to apply for equity release.
Legal experts can provide you with sound advice and support to help plan your estate, analyse your Will and give you the tools to change and edit your Will should you successfully apply for equity release.
For valued advice and support on how equity release affects your Wills and estate planning, get in touch with our team.
Head of Wills, Probate and Older Client Services
I joined Mander Hadley’s Wills, Probate and Older Client Services Team in 2018.I specialise in the preparation of Wills, Probate and estate administration, trusts and trust administration and Lasting Powers of Attorney. I also have experience of care fee planning and appeals of Continuing Health Care decisions.
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