Downsizing
Selling up and buying somewhere smaller or cheaper can free up cash without any borrowing. Remember to allow for the cost of moving.
The idea in brief
Equity release is for homeowners aged 55 and over who want some of their home's value as cash and would rather not move. "Equity" is the share of your home that is yours: its value, less any mortgage you still owe.
The money can come as one lump sum, in smaller amounts when you need them or, in some cases, as a regular income. Most people take out a lifetime mortgage, which is a loan secured on your home. The other route is a retirement interest-only (RIO) mortgage, where you pay the interest each month. Lifetime mortgages and RIO mortgages are the only types of equity release I advise on, so this guide sticks to them.
For some people it works very well. It is also a long-term commitment with real costs, which is a good reason to take your time.
Retirement interest-only (RIO) mortgages
With a RIO mortgage you pay the interest each month, so the amount you owe doesn't grow. The loan is repaid when the last borrower dies or moves into long-term care. Your income has to cover the monthly payments now and in future years, so it isn't right for everyone.
Who it's for
Who can apply?
- You are 55 or over. If a couple apply together, each of you will normally need to meet the minimum age.
- You own your home in the UK. A leasehold property may be accepted, depending on the terms of the lease.
- Your home is worth at least the lender's minimum value.
- Any mortgage you still have can normally be repaid from the money released.
How much could you release?
It depends mostly on your age and what your home is worth. As a rule, the older you are the more a lender may offer, and some offer more where certain health or lifestyle factors apply.
The calculator gives a rough figure in about a minute. It's only an estimate: a real offer depends on the lender and on your circumstances.
Step by step
From the first chat to money in your account
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The first chat
We begin with a free, no-obligation conversation about your home, your finances, what you'd like the money for and how your family feel about it. You can have someone join you if you wish.
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Comparing your options
We look at whether equity release suits you compared with the other routes open to you. I explain the costs and risks of each so you can weigh them up fairly.
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My recommendation and your illustration
If equity release looks suitable, you receive my recommendation in writing, together with an illustration based on your own figures showing the costs and how the loan could grow. You then have time to read it and think it over.
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Independent legal advice
A solicitor will be appointed independent of the lender to guide you through the documentation.
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Application, valuation and offer
The lender has your home valued, checks the details and, if all is in order, issues a formal offer. This normally takes a few weeks, depending on the lender and the solicitors involved.
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Completion
When everything has been signed, the money is released. Any existing mortgage is cleared first and you receive what's left.
Involve your family. Your decision affects what they may inherit, so it's often wise to bring them in early. Many people ask a relative to sit in, or join the call, for the first conversation.
What happens in later years?
With a lifetime mortgage you carry on living in your home as you do today. The loan and the interest built up on it are normally repaid when the last borrower dies or moves into long-term care, usually from the sale of the property. Whatever is left goes to your estate.
While the plan is in place, you're expected to look after the property and keep it properly insured.
What are the costs?
Costs differ from plan to plan, so always ask to see everything in writing. They can include:
- Interest, which is usually fixed or capped for life and often added to the loan.
- Arrangement and legal fees can be added to the loan.
- Early repayment charges if you repay or move before the plan ends.
- Any fees charged by Avalon ER will be confirmed in writing before you go ahead.
Be aware
The downsides
Equity release isn't right for everyone. The main things to weigh up are:
- The debt grows. If interest isn't paid, it's added to the loan and then earns interest itself, so the amount owed can grow quickly over many years.
- There's less left for your family. It reduces the value of your estate.
- It may affect benefits. Extra money may change your entitlement to means-tested benefits, although that's not always the case.
Your protections
Equity Release Council standards
Avalon FS is a member of the Equity Release Council, whose standards are designed to protect you. Its members commit to standards including:
- The right to stay in your home for life, provided you keep to the terms of the plan
- A no negative equity guarantee: you'll never owe more than your home is worth
- The right to move to another suitable property, subject to the lender's criteria
- Fixed or capped interest rates for life
- Independent legal advice before you commit
Other routes
Alternatives to consider first
Sometimes the best answer is not to release equity at all. Each of these is worth thinking about, and I'll talk them through with you whatever you decide.
Ordinary borrowing
A standard mortgage or loan may cost less if the monthly payments are comfortably affordable, although some lenders have age limits.
Help from family
Some families can lend or give support. If yours can, agree the terms clearly and put them in writing.
Benefits you may be missing
Check you're getting all you're entitled to, such as Pension Credit or Attendance Allowance. Age UK and the government's benefits calculator can help.
Savings and pensions
Your savings or pension might cover what you need. Pension Wise gives free, government-backed guidance to many people aged 50 and over.
Shall we talk it through?
There's no obligation and no pressure. Try the calculator, or get in touch for a relaxed conversation.