Equity Release: How Does It Work In UK?

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There are many reasons as to why a home is considered one of the biggest investments you can make in your life. Perhaps one of the biggest reasons is that the property can always provide you with financial relief when you need it most. If you guessed right, one of the ways it does so is using the equity that you own on this property, through what is known as equity release. If you live in the UK, are 55 years or older, and you’re wondering how you can use your home or property to get your finances back in order, this article is for you. Here’s are some pointers explaining what Equity release is and how it works in the UK.

What Does Equity Release Mean?

Mostly available for homeowners who are 55 years and older, Equity release is basically a scheme that allows you to tap into the value of your property so you can get cash in a lump sum. More often than not, you find that most homeowners this old do not have a regular income, which restricts their ability to qualify for regular mortgages and personal loans. Equity release offers them the opportunity to use their property to get money in a lump sum or in regular bits so that they can meet their financial obligations.

Providers of this facility get to earn interest/profit out of the money given as well as a certain percentage of equity on the property in question. When and if the property is sold, the homeowner gets the percentage of equity remaining on the value of the property, less any interest accrued as per the agreement with the provider.  The best thing about it is that after taking equity release, you’re not needed to move from the property or pay rent until the whole deal is done.

Now that we have this in mind, there are two main types of equity release:

  • Lifetime Mortgage
  • Home Reversion

Lifetime Mortgages

Lifetime mortgages are simply loan facilities that allow you to borrow money against your property. The money could be paid to you by your lender in a lump sum, a regular income or both at an agreed-upon interest. The unique thing about lifetime mortgages as explained further here, is that you still get to own the property, the money is tax-free, you won’t pay rent, and the debt will only be repaid when you die. Once you die, your lender has the right to sell the property to recover their money and submit the rest to your estate. Also, there are some special “drawdown” plans nowadays, which allow you to repay interest (or even part of the capital) for the money borrowed on this plan. It all depends on the lender you approach and the deal you strike.

Home Reversion Schemes 

To qualify for a home reversion plan in equity release in the UK, you need to be 60 years old and above. In this scheme, your provider gives you a (tax-free lump sum), for an agreed-upon portion of your property. More often than not, pricing is at below market value by 20 to 60 percent, but you get to live on the property without paying rent until your unfortunate demise. When or in case the property is sold, you and the lender will split the proceeds based on the percentage each one of you owns as well as the market value of the property.

For instance, if you sell 60% equity in a property that is currently worth £300,000, the provider may choose to give you a lump sum of £90,000 instead of £180,000, which is what you’re actually supposed to get as far as math is concerned. It may look as if you’re losing out initially, but considering that it’s money that is being advanced to you, it can pay you back with time. The same property could be sold some years later at £420,000 when you die, which means that you’ll still have a considerable amount to leave to your kin. There are no interests, plus you get to live on your property without paying rent.

In a nutshell, equity release can be a great way to get out of a financial situation. Whether you need to pay off your credit card debt, buy another property, make an urgent investment, or simply enjoy your retirement like a boss, equity release can be a great alternative to raise the much-needed money. However, it is still highly important to consider having a sit-down with an expert financial advisor before rushing to make your decision as borrowing is a delicate subject, especially if you’re in your golden years.


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