Equity release advisers in Barnes and Mortlake

House prices have been rising fairly consistently for decades, meaning that many people have considerable cash reserves locked up in their homes. Equity release is a process that allows you to access that money for use right now, perhaps to fund your retirement, help a child onto the property ladder, go on that dream holiday or fund home improvements.

Equity release isn’t for everyone and it’s a decision that should be considered carefully, as it can have an impact on the inheritance you’re able to leave your family, in addition to potentially affecting your entitlement to certain benefits. At Cavendish IFA, we’re here for clients in Barnes, Mortlake and more widely across London to guide you through the process and ensure your money is working for you.

 

What is equity?

Equity is essentially the proportion of your home you own. Your equity can be calculated by taking the amount you still owe on your mortgage from the total value of your home. So, if your home is worth £600,000 and you have £175,000 remaining on your mortgage, you have £425,000 of equity in your property.

If you were lucky enough to have bought the same home outright, or you have paid off your mortgage, then you have £600,000 of equity.

 

How does equity release work?

There are two main types of equity release:

  • Lifetime mortgage

The most popular type of equity release is a lifetime mortgage, which is a type of loan secured against your home. Unlike a typical mortgage, the money you borrow with a lifetime mortgage doesn’t have to be repaid until you either pass away or move into long-term care.

Instead, the interest accrued gets added on to the total loan amount. This means that the amount you owe upon repayment may be considerably more than you originally borrowed. Due to this, some lenders will allow you to repay the interest and some will even let you pay off the interest and some of the capital, as you would with a standard repayment mortgage.

When you take out a lifetime mortgage, you still retain ownership of your home – this means that when the loan is repaid upon your death or transfer to long-term care, anything left over will go to your beneficiaries.

By its nature, taking out a lifetime mortgage will mean there is less wealth to leave behind for your family when you are no longer around. On the plus side, equity release can form a valuable part of your Inheritance Tax strategy if you use the money to make lifetime gifts to your family. If you die over seven years after gifting money to your children and loved ones, your beneficiaries won’t have to pay any Inheritance Tax on the money they received.

  • Home reversion

Under a home reversion plan, you sell all or part of your home to a specialist provider in return for a tax-free lump sum, a regular income, or a mixture of the two. You are able to stay in your home as a lifetime tenant – sometimes rent-free – until you either pass away or go into long-term care.

With this type of equity release plan, you won’t be able to access all the equity in your home; depending on a range of factors, including your age and health status, you will usually get between 20% and 60% of your home’s market value.

As with a lifetime mortgage, a home reversion scheme means there is less wealth left over to bequeath to your beneficiaries upon your death. And, because you have sold some or all your home for less than its market value, you’re missing out on any future price rises that a lifetime mortgage holder would be able to take advantage of.

Home reversion is usually best suited for older people or those in poorer health, as these factors will usually allow you to access more cash.

 

How old do I need to be to be eligible for equity release?

You usually have to be at least 55 to be eligible for an equity release scheme, but this may vary from provider to provider.

 

What does equity release cost?

Unfortunately, it is impossible to provide a precise figure because cost of equity release varies according to a wide range of factors. According to Money Saving Expert, the average cost ranges between £1,500 and £3,000, but it may be more or less depending on your chosen providers and the ins and outs of your particular equity release product. Typically, the cost will be made up of:

  • Any fees associated with taking out your equity release product
  • Financial advice fees
  • Solicitor’s fees
  • Valuation fee (if required).

If you choose a lifetime mortgage, you will also accrue interest, which can significantly increase the total owed to your provider.

However, you do not have to pay any tax on the money gained through equity release.

 

How long does equity release take?

There’s no defined timetable and circumstances can vary. However, we find that the full equity release process usually takes between eight and 12 weeks.

 

The pros and cons of equity release

It is highly advisable take independent financial advice before proceeding with equity release. This is because equity release can have a significant impact on your financial situation and the inheritance you are able to leave behind for your family.

Pros of equity release:

  • You can use the cash tied up in your property whilst being able to remain in your home.
  • You don’t have to repay the money until you no longer need your home.
  • Your tax-free cash can be used for anything you like.
  • You can supplement your retirement income and enjoy your later years in comfort.
  • You’ll never owe more than what your home is worth – all providers who are members of the Equity Release Council (ERC) offer a ‘no-negative-equity’ guarantee. This means you, your family and your estate will never have to pay back more than the value of your property.
  • You may be able to use equity release to reduce the Inheritance Tax owing on your estate by gifting money to your family during your lifetime.

 

Cons of equity release:

  • You won’t have as much to leave behind for your loved ones.
  • It may affect your ability to qualify for certain means-tested state benefits such as Universal Credit, Pension Credit, Housing Benefit and Income Support.
  • Compound interest on lifetime mortgages mean that the amount you owe could be much higher or even the full value of your property by the time you die or go into long-term care.
  • Home reversion providers will usually pay less than market value for your property.
  • Some equity release products may restrict your ability to move homes.

The value of financial advice

Equity release has some big financial implications and isn’t a decision that should be taken lightly. At Cavendish IFA, we work with clients in Barnes, Mortlake and across London to help them understand the implications of equity release on their personal finances.

With so many different equity release products and schemes now available to consumers, choosing the right product and provider can feel like picking a needle from a haystack. Our advisers will help you understand the benefits and drawbacks of equity release and recommend a product that suits your unique circumstances. We’ll also look to minimise your costs by, for example, securing the most competitive interest rate or ensuring you can pay back at least some of your loan without incurring an early repayment charge.

We can also provide joined-up tax planning advice to ensure that your chosen type of equity release works with your tax and estate planning strategies, ensuring that as much of your wealth as possible can be passed on to future generations.

To speak with an experienced adviser and find out whether equity release might be suitable for you, please get in touch by calling us on 020 8741 2424 or by emailing us at advice@cavendishifa.co.uk.

Contact Us:

Tel: 020 8741 2424   Email: advice@cavendishifa.co.uk

69 Madrid Road, Barnes, London SW13 9PQ