Equity Release
If you’re over 55 and looking to free up capital from your property then our Equity Release specialist can advise you on the suitability of different lifetime mortgage options.
What is Equity Release?
Equity Release gives you the option of taking equity from your property without the hassle of moving. Perhaps you have kids buying their first home, young grandchildren to treat or large family holidays to fund. Maybe you are already in retirement and want more funds to travel or do some long-awaited home improvements without needing to leave the home you love.
Whatever your story, using your property to provide extra money for your plans can be a clever way of managing your equity. But while there are benefits, there are also risks, so it is important to get the advice of an equity release specialist who sits on the Equity Release Council and is qualified to give unbiased advice based on your circumstances.
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Is releasing equity the right thing for me?
Everyone’s situation is different so the best way to plan for your future is to talk to a financial expert. Equity Release products are not the only way of freeing equity from your property so at Downton Mortgages & Financial Services we will take time to understand your unique financial situation and life plans. Armed with that information we will then explore all your options with you, take the time to answer any of your questions and explain the risks and benefits, leaving you confident and informed when making your decision.
What are the different types of Equity Release?
Lifetime Mortgage
The most common type of equity release product is a Lifetime mortgage. It works in some ways like a traditional mortgage – you borrow an amount against your home, receive a lump sum (and potentially a drawdown amount) and then choose if you want to pay the interest, none or some of it. However, any interest unpaid increases the loan every month. The debt, including any unpaid interest that has been added to the loan is repaid when you pass away or move into long term care.
Home Reversion plan
An alternative is a home reversion which is designed to provide tax free cash. Here you actually sell your home (or a portion of it) to a Home Reversion provider and in return they give you a lump sum. If you decide that this is the right option for you then we will refer you to one of our trusted third party specialist advisers.
How does an Equity Release Lifetime Mortgage work?
There are 3 steps when taking a Lifetime Mortgage:
1. Your lender will agree an overall sum of money you can borrow.
2. You choose how you want to take the money – e.g. an initial lump sum with an option to drawdown further money in the future as you need them. Interest is added to the money you have taken as a lump sum and any future draw downs (but not until the drawdowns are actually taken)
3. You choose to pay the interest back during your lifetime or it can be “rolled up” and repaid when you pass away or move into permanent care (or a combination).
“we would not hesitate to recommend her to assist others on their Equity Release journey” (Mar ’24)
Frequently asked questions
What is the Equity Release Council and why is it important?
If you do decide Equity Release is the right choice for you, then it is important that your lender is a member of the Equity Release Council. This trade body requires providers and advisers to abide by several important rules. Clara Downton is a member of the Equity Release Council, making her qualified to give impartial and detailed advice about Equity Release:
What are the benefits of Equity Release?
Equity Release is becoming increasingly popular, showing that more people are realising its benefits, which include:
- Opening up more options – people are thinking more creatively about how they leave money to loved ones. Helping dependents with the cost of living, buying homes or paying for important life events is often a more attractive way of providing for family. Equity Release opens up these options if savings are not available during your lifetime.
- Retirement but not as we know it – gone are the days of spending your retirement in the garden. If travel and experiences with family and friends is more what you have in mind, then Equity Release can provide the funds that might be otherwise unavailable.
- Ease of unlocking funds without the stress of moving – If you have owned your property for a while then it has likely increased in value meaning that you may have a significant amount of equity locked away. Historically the only way to release these funds would be to move house but equity release products take this stress away. It can also be key where someone has an existing interest only mortgage that they need to redeem, but don’t want to sell their property in the process.
- A “no negative equity” guarantee – the Equity Release Council requires lenders giving their accreditation, this gives an assurance that you will never owe more than your property is worth, so although interest payments can increase the risk of debt, this risk is capped. I would only recommend Lifetime mortgages that are covered by the “no negative equity” guarantee.
What are the potential risks of Equity Release?
You may have already noticed that Equity Release schemes can be very persuasive, but as with any financial product there are also risks that you need to consider. At Downton Mortgages & Financial Services, we will make sure that you’re aware of all the risks, but here is a brief overview of the main considerations:
- If you do Home Reversion, you won’t receive the full market value of your home – compared to selling your home, the loan you receive won’t be as favourable, though you are of course able to avoid the cost and upheaval of moving. I don’t directly provide advice on Home Reversion, however I can refer you to a third party provider for their help.
- The longer you live, the greater your debt becomes – while you might start with a relatively small loan, this could easily double within a decade or two. It is important to consider whether you want to make interest payments to reduce this “roll up” of debt, otherwise there may not be much, left to be inherited in the long-term.
- It might reduce the amount of inheritance available for your dependents – using the equity in your home, or accruing debt from the interest can all have a negative impact on the money you will leave in your will.
- Interest rates are typically higher than with other mortgage products so the amount owed can grow quickly. You can of course make interest payments and/or overpayments up to 10% of the value of the loan if you want to reduce the impact of interest on your equity and the size of the eventual loan.
Are there other mortgage options I could consider instead?
It’s important to note that Equity Release isn’t the only option that is available to you when you’re planning your retirement. For example, a Later Life Mortgage might be more appropriate, and you can find out more about this on our general mortgage page.
We are here to ensure that you make the right choice for you, your family and your circumstances, so even if you initially approach us to talk about Equity Release, we will still talk you through all of the options that suit your needs so you’re completely informed.
You may have many more questions about Equity Release that aren’t covered here. If you want to speak to a friendly and knowledgeable equity release specialist in more detail, then get in touch to arrange a free, no obligation call to discuss your individual circumstances.
It’s important that we let you know the following about Equity Release. As members of the Equity Release Council we will always be totally transparent about the risks involved in any financial decision you choose to make.
A Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. The impact of not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate.
For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,000 after 10 years assuming no repayments are made. This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional. You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.
A fee for Equity Release advice will be charged upon completion. This fee will typically be £499 but the exact amount will be dependent upon your circumstances.
“Clara was so helpful and professional whilst making me feel at ease through a process I have not undertaken for very many years.”
Get in touch
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