Free Up The Cash In Your Bricks And Mortar
If you’ve been super savvy, by the time you get to 55 you may have paid a significant chunk off your mortgage, or be totally mortgage free.
It’s a great feeling, but what if you’ve ploughed all your savings into your property and have a few more years to go before you can cash in your pension pots?
If you need money for something you want to do or have now, how do you go about getting it when it’s locked up inside your bricks and mortar?
You could sell up and downsize and release some equity that way – but what if you don’t want to move.
You could remortgage or apply for a new ‘unencumbered’ mortgage if your mortgage is paid off – but then you’d have to make monthly mortgage repayments all over again.
Being asset rich and cash poor can feel frustrating. If you find yourself between a rock and a hard place, equity release could give you the cash injection you need without selling up or making repayments.
If that sounds too good to be true, then the first thing you need to do is speak to a Yellow Brick consultant who can discuss equity release with you.
In the meantime, read on to discover more about equity release and what to be aware of.
What is Equity Release?
Equity release is a way to borrow money based on your property’s worth. In return for a 20% to 65% investment in your property, an equity release lender will pay you a lump sum, or smaller regular payments, without you having to move home.
The loan is only repaid following the sale of your home when you die or move into long-term care. Unless you want to, there are no monthly repayments to make.
When To Consider Equity Release?
The time to consider equity release is if you need money to do or have something, but don’t have savings or access to pensions or other cash. You could use equity release to improve your living space to make the most of your home and garden celebrate a special anniversary by taking off on a world cruise enjoy a ‘staycation’ whenever you choose by buying a motorhome semi-retire and use the money to supplement your income or … pay the deposit on a first home for your children or grandchildren
It’s a fact that it’s harder for younger people to get a toehold on the property ladder these days. House prices are so high, deposits are out of reach for many. So you could release equity to give or lend someone you love the deposit for their first home.
What Are My Options?
There are two types of equity release. Lifetime Mortgages and Home Reversion Plans.
Lifetime Mortgages offer flexibility and less personal risk. To apply you need to be aged 55 or over and the amount you can borrow will depend on your age and health. Here are some benefits:
- you retain the right of ownership
- you can stay in your property until you die or move into long-term care
- if you decide to move you can transfer the loan to another property
- there are flexible repayment options
- lump sum – make no repayments until your home is sold
- drawdown – take a lower lump sum and drawdown more when you need it
- interest-only – make monthly interest payments to pay the capital at the end
- flexible – repay the loan like a mortgage
- enhanced – if your longevity is limited, you can apply for a larger loan
Home Reversion Plans are more restrictive and risky, so be sure to make an appointment with a qualified equity release adviser beforehand. Yellow Brick Retirement Solutions does not give advice on Home Reversion Plans directly, but would refer you to a specialist in this area if this was the preferred route of raising money. Here are some key elements:
- you must be in your sixties or older to apply
- you give away the right of ownership to some or all of your property
- you can live in your home rent free, but you must maintain and insure it
- the lender will sell your home after you die or move into care
- interest will compound during the lifetime of the loan
- you could pay back a lot more than you borrow
- you can ring fence some money for inheritance, but its value won’t appreciate
Dispelling Some Myths
It’s fair to say equity release schemes have had some bad press over the years. Nowadays this type of financial services product is highly regulated to protect homeowners.
Myth 1 – equity release isn’t safe
Legitimate lenders and advisers are governed by the Equity Release Council and authorised by the Financial Conduct Authority.
Myth 2 – I won’t be able to move home
You can transfer the loan to a new property if you want to downsize.
Myth 3 – My family must pick up the shortfall if my home sells for less
The No Negative Equity Guarantee means you or your family will be protected if your house is valued at less than the loan.
Myth 4 – My partner will have to move out if I die before they do
If you have a joint equity plan, neither of you will need to leave the property if one of you dies or moves into long term care first. Ensure the plan you choose covers you both.
Myth 5 – Interest rates are massive
Interest rates used to be much higher than they are today. Currently, they start at around 3%. Your adviser will compare rates for you.
What You Need To Know About Equity Release
Interest rates can be fixed for the entire loan period and the interest you are charged will compound during the lifetime of the loan. You could pay a lot more than you originally borrowed, however there are options to pay the interest off as you go along.
Market value – Make sure you know the true value of your home. Home Reversion Plan lenders may offer you less than your home is worth.
Legal advice is mandatory – engage a solicitor before taking out a loan.
Set up fees can cost as much as £3,000 and you will need to add legal fees on top.
U-Turns can be tricky – it can be hard to back out if you change your mind. Early repayment penalties may be charged.
Is Releasing Equity Right For You?
Probably the most important thing to consider is inheritance. Do you plan to leave the money following the sale of your property when you die, to your partner or family?
If you have dependents, grandchildren or adult children, this is a crucial decision. However if you have no dependents or children and have no intention of leaving an inheritance, then raising money through equity release could be right for you.
Other things to consider are your age, longevity and income, and whether you could secure a different type of property loan. Do you have any pensions due to mature, or can you transfer a pension to access cash that way?
These are all things to discuss with our adviser to help you make the right decision.
How Yellow Brick Retirement Solutions Can Help You Decide
We will always recommend getting together (whether in person or virtually), to understand what you want to do and your thoughts on how you want to go about it.
We would always encourage that these meetings include your family members, children or other possible inheritors of your estate so they can understand what you are looking to do and can have any questions or concerns they may have answered.
This will be a key part of our initial fact find, so we can give you our very best advice, based on our experience and knowledge.
Because we know a great deal about raising money through property, we can save you a lot of time, money and risk, than if you were to go it alone.
We will help you explore other options such as remortgaging or selling to downsize.
If equity release is right for you, as an equity release qualified company, we will only recommend products from lenders who are members of the Equity Release Council.
This ensures you will be protected by the ‘No Negative Equity Guarantee’, which means you won’t pay a shortfall if your home is worth less than it is today.
Yellow Brick Retirement Solutions is a trading style of Yellow Brick Mortgages who is an appointed representative of The Openwork Partnership, a trading style of Openwork who are authorised and regulated by the Financial Conduct Authority.
You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.