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Guide to Equity Release: Our top 6 frequently asked questions
- AuthorKiri Saunders-Brown
At an age where it may be challenging to access more traditional mortgage finance, equity release can supply you with the funds for your future plans. The money generated from equity release can be used for any purpose you have in mind, such as a once in a lifetime holiday, home improvements or even assisting a loved one in the purchase of their own property. In this guide Associate Solicitor and Equity Release specialist, Kiri Saunders-Brown, details everything you need to know about equity release, including what it is, how long it can take, the safety of it and how it can impact Inheritance Tax.
What is equity release?
Equity release is a way to generate extra money without having to move out of or sell your home. There are two different types of equity release, which are:
- Home reversion plan – This scheme will see the entirety or part of your home sold to a private company. You would then receive an income, a cash lump sum or a combination of the two and you would remain in the property rent free or pay a very small monthly rent until the property is sold. It is at this point the company would then receive the proceeds of the sale relating to the share you sold them.
- Lifetime mortgage – This plan would mean you borrow against the value of your home. We are also able to advise you on the interest rates of this scheme, which are charged at a full rate and are included in the total of the loan. The sum would also be paid as either an income, lump sum or both. You can still live in your home and maintain full legal ownership of it. The loan would not need repaying until you pass away or move into another property.
“Equity release can be very useful, but we would also discuss all other options that may be available to you before you make a decision,” explains Kiri.
Does releasing equity impact Inheritance Tax?
Releasing equity in your home reduces the value of your property, and as Inheritance Tax (IHT) is determined by the size of your estate, doing so could mean there would be less IHT to pay. As it is a complex area of law, and can vary hugely dependant on your personal situation, the best course of action would be to contact us for specialist advice so we can advise you on the potential charges your loved ones will face and also how you can moderate the payment of Inheritance Tax.
“Inheritance Tax considerations play a huge part of the decision to release equity,” comments Kiri. “It is a complex area of law, but one that we can discuss with you to ascertain what impacts it will have on your estate, and whether it is the right option for you.”
Are there risks associated with equity release?
“The process of releasing equity is fully regulated by the Financial Conduct Authority (FCA), and while there were concerns in the past, it can now be a safe and effective way of generating funds,” explains Kiri. “We are also members of the Equity Release Council (ERC) which represents the relevant people in the sector and ensures they follow the rules of conduct that keep your best interests at the heart of what we do.”
The threat of finding yourself in the position of owing more than the value of your home, also known as negative equity, used to be a common fear with equity release, but with many of the current schemes available this is no longer the case. There are also a number of safeguards in place, which are:
- The schemes available now have more protections built into them. Often unless you choose to make repayments, there are none due and so there is no risk of having your home repossessed or falling behind on payments.
- Any financial advisor looking to advise on equity release must have been given the authority to do so by the FCA, who are the watchdog and regulator for financial services in the UK. They must also follow the FCA’s strict rules of conduct.
- Before committing to equity release the FCA and ERC require individuals to seek independent financial advice and also to have had at least one meeting in person with a Solicitor.
- The ERC is an organisation that Solicitors, advisers, surveyors and providers can join. Any organisation looking to join the ERC, as we have, must comply with their strict code of conduct when offering advice on equity release and so you can be sure that any guidance we offer has been thoroughly vetted.
Does equity release take a long time?
While the process of releasing equity in your home typically takes between 4 to 6 weeks, the time scales can vary depending on a number of circumstances, such as which plan you choose, your particular situation and if there are any issues along the way. The general steps to the equity release process are as follows:
- First you must consult with a financial adviser as to whether equity release is the best option for you and then make an application to an equity release provider.
- A valuation of your property may then be undertaken to confirm its market value and to see if there are any repair works that are needed.
- As soon as the equity release provider makes an offer, you and your Solicitor will receive separate copies. The Solicitor will report to you on the terms of that offer, and invite you to meet with them to sign all of the necessary paperwork and discuss any questions that you have.
- All signed documents and a certificate from your Solicitor confirming you have received independent legal advice are then sent to the equity release provider.
- The money is released to you at the earliest possible opportunity.
What role does a Solicitor play in the equity release process?
"As much as releasing equity is a financial process, it is also a legal one," explains Kiri.
Regulations call for the involvement of a Solicitor to act as a further safeguard to make sure you fully understand the equity release process. There are many elements in the equity release process that are similar to a traditional conveyancing sale or purchase and so an experienced Solicitor will be able to help move the process forward.
During the equity release process your Solicitor will:
- Conduct any necessary searches on the property,
- Carry out an investigation on the title deeds,
- Confirm your identity for Money Laundering Regulations,
- Check you have adequate building insurance in place
- Assist you if you are using your equity release funds to pay off your existing mortgage.
Having a Solicitor's guidance while releasing equity also means that they can offer you advice on how the process could impact the other areas of your life. Releasing equity in your home will have certain effects on your estate and any Inheritance Tax that may be payable in the future, so it is vitally important to have your Will reviewed at the same time.
Is it better to release equity, or downsize?
While downsizing and equity release are both effective at raising money in your later life, which option is best for you will depend on a number of different factors.
Due to the reduced living costs, downsizing can often look like the more attractive option, especially if your children have left your family home, but there are many additional expenditures that come with moving home, such as:
- Stamp Duty Land Tax,
- Estate Agent fees,
- General moving costs, like a removal team,
- What other houses in your area are selling for,
- The current state of the property market.
"Over the last few years, using equity release as a way to raise funds for your later life has become increasingly popular," concludes Kiri. "While there were concerns regarding the safety of the process, there is now a regulating body and many safeguards in place to ensure that you only release equity if it will work for you, but that you also choose the scheme that is best suited to your individual situation."
To find out more about equity release and how we can help you, call Kiri today on 023 8071 7438 or email firstname.lastname@example.org. Alternatively you can review our articles here:
- Should I release equity in my home?
- First time buyers being helped by equity release
- Can I use equity release to buy a second property?
- Can I sell my home if I have released equity?
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice. All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.