Equity Release Schemes
Equity release is a way of exchanging some of the equity in your house for capital.
It is most appropriate for home owners with no outstanding mortgage who would like to raise capital based on the equity within their home, without selling it. They are helpful if you have a high level of assets but a low Level of income.
Types Of Equity Release Schemes
There are two types of equity release schemes:
- Home reversion plans
- Lifetime mortgages
Both of these schemes are aimed at older homeowners and are designed to enable them to benefit from the value of their homes without having to move out of them.
Home Reversion Plan
A Home Reversion Plan can be a useful way of releasing equity from your home: a home reversion company either buys your home or a part of it at a discount to the market price. In return you will receive a cash lump sum or an income.
The home, or the part of it that is sold, now belongs to someone else, but you are allowed to carry on living in it until you die or move out.
Risks of Home Reversion Plans
There are risks associated with home reversion plans because they have significant implications for tax, benefits, inheritance and long-term financial planning. Two key points to note when considering home reversion schemes are:
- The need for clear, concise and consistent information about the firm’s services and the products on offer (including appropriate risk warnings) so you can make informed choices
- Obtaining good quality advice which will lead to finding the right products according to your circumstances and needs.
Lifetime mortgages enable you to release equity from your home in a cash sum which is repaid with accrued interest when you die or sell the house – often to move into long-term care. The money can be released as a cash lump sum or a regular income for the rest of your life.
Most companies only offer lifetime mortgages to those over 6os, although some are available for individuals over 55.
A Drawdown Lifetime Mortgage is similar to a lifetime mortgage, but is more flexible as it allows the individual to take their cash over a period of time as and when it is needed. This can mean less interest builds up.
Only a specialist adviser authorised by the FCA can sell Lifetime Mortgages.