Equity release is simply the process of converting money tied up in property (known as equity) into cash. This can be done at any stage in life but the term “Equity Release” is now more associated with older and/or retired people. They tend to be asset rich and cash poor. They have lived in their property for many years and the value has shot up. However sometimes they have very little income so struggle to make ends meet.
It is possible to release some of the equity in order to help cover their day to day living expenses.
Equity Release can also be used for other purposes. It may not be possible to get a traditional mortgage because of age or other restrictions. Some people release equity to fund improvements to the home or allow them to go on a holiday. The money that you release can be used for any (legal!!) purpose.
This is definitely an area where you need to take independent advice. Find a local Equity Release adviser through unbiased.co.uk.
There are two main types of Equity Release; there are Lifetime Mortgages which allow you to borrow money against your house and there is Home Reversion which means you sell a share in your house.
With Lifetime Mortgages interest is charged but usually nothing is paid back on the loan until you either sell up or die. The interest in compounded over the whole period of the loan which means the debt can escalate more quickly than you may expect.
Home Reversion schemes are where you sell a share of your property to the provider for less than market value. You retain the right to stay in your home for your lifetime if you wish. When you die or move into long term care and the property is sold then the provider gets the same proportion of the sale price as the amount you borrowed. This means that if you borrow 50% of the value of your home that is how much the provider will get when it is sold.
Lifetime Mortgages are available from the age of 55 but Home Reversions can only be taken out by people aged 65 or older.
Equity Release isn’t a cheap way of raising money and it’s very expensive compared to a conventional mortgage.
There is a lot more to say about Equity Release but hopefully this will be a useful starting point.