Equity Release

What can you use Equity Release for?
  • Debt repayment – there is no restriction on how the money can be used. Interest on accumulated credit is often high and a burden to many. One off financial injection can be used to clear all debt.
  • Day to day living – help with a loss of a pension income from a death of a partner or the erosion of living standards with fixed pension income.
  • Financial help for family – grandchildren’s education, deposit for a family member.
  • Remortgage an interest only mortgage – many interest only mortgages coming to end of the term can be remortgaged to an interest only mortgage.
  • One off life events – cruise holiday, new car, special family visits.
  • Medical emergencies – such as private funding for an organ transplant.
  • Later life expenses – delay long term care.
  • Reducing inheritance tax.
  • Unexpected home emergencies – replacing a boiler, roof repair etc.
Who is it for?

Equity release can be a way for those in retirement with equity in the property to raise capital. Equity release loans are based on equity in the property and not on earned income (except one type) so proof of income is not required. Those with low levels of adverse credit can also qualify.

All Equity Release plans allow you to remain in the property until death or moving on to long term care. You can elect to pay no interest, part interest or all of the interest of the loan. If no interest is paid, it is added to the loan or rolled up (see later).

Funds are tax free and can be used for any legal purpose. Funds can be released up front or in stages. All scheme Axess Financial Services recommend belong to SHIP standard of Equity Release Council.

Equity release is a big decision and may not be the only or the best way to raise capital for your circumstances. There may be alternatives you can consider – download our guide: Alternatives to equity release.

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How does it work?
  • Equity release works different to a normal residential mortgage. The property needs to be mortgage free or the equity release loan needs to replace any existing loans (i.e. it needs to be first charge)
  • You either sell part of the value of the property to a lender or take a loan on equity on the property.
  • The funds releases can be used for any purposes and is tax free.
  • You can choose to pay interest, part interest or no interest on the borrowing.
  • Loan can be repaid at any time (redemption charges may apply in during the early period).
  • If loan: outstanding loan is repaid on death through sale or by next of kin. Outstanding equity is passed on as inheritance.
  • If sale: outstanding loan does not need to be repaid on death or moving to LTC as lender owns the property. Value of any outstanding share is passed on to next of kin as an inheritance.

Our experienced advisers can guide you through the advantages and disadvantages of equity release and if it is a suitable option for your circumstances.

Different types of Equity Release?

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Equity Release Type 1: LIFETIME MORTGAGES

A lifetime mortgage is like any other residential mortgage, except that it is only available for those over a certain age (over 55 or 60) and you have the option to pay monthly interest or add it to the loan. No capital is repaid and the total available to borrow is capped. By nature they are not suitable for all, but can be used by those in advance years to release funds from equity in their property.

What happens to interest?
Equity release mortgages are designed for you to not to make any payments towards the loan. That includes any interest. It is called rolling-up the interest, that is, the interest is added to the loan.

Modern lifetime mortgages allow you to deal with interest in three ways.

  • Pay all of monthly interest regularly.
  • Pay part of interest – part not repaid is rolled-up.
  • Pay no interest or live in the property without any debt servicing.
  • (There is no interest element in Home reversion plans as the lender owns their share outright.)

    Advamtages and disadvantages of Lifetime mortgages?
    Advantages: those who are cash poor can enjoy or improve their life from the equity they have built up over the years, without the burden of monthly interest payments.

    Disadvantages: the interest gets compounded or rolled-up and so the debt can accelerate rapidly (see diagram below). This can erode the inheritance you are able to pass on. For some this may be an advantage, as it will reduce the inheritance tax liability. However, you will never be forced out of your home, even if the interest accumulated becomes more than the value of the property. This is called the Negative Equity Guarantee** under SHIP* schemes(see later).

    Inheritance and Equity Release.
    Before you make a decision it is important to consider how the value of your home can change in the future. This can affect the level of inheritance you are able to leave the dependents or the family, and also whether you will be able borrow more money in the future.

  • UK house prices over the last 50 years* (1959 -2009) have grown by 2.7% a year, after inflation is taken in to account (which is a better measure of actual growth).
  • The average growth in real earnings for the same period is 2%.
  • UK house price growth in the 2000’s have been 6.1% (after inflation) a year.

  • *Lloyds Bank UK Housing Market Survey Jan 2010

    Below shows how change in house price can affect future value of a property and then equity left for inheritance.
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    Early repayment penalty (ERP) and Fees

    Some equity release providers do not allow regular payment of interest. However, they may allow lump sums to be paid either without charge or with a penalty.

    ERP cam be of two types:

  • Fixed and known: Based on a % of the outstanding loan; i.e. 5%, 4%, 3% etc.
  • Based on general economy: Movement of a selected benchmark gilt or bond index, e.g. UK gov treasury 20 year gilt index*.
  • ERP not applied under following circumstances.

  • Plan allows a repayment of fixed amount per year as a condition e.g. 10% of loan.
  • The benchmark interest at the time of requesting repayment is the same as, or higher than, the rate on which the mortgage is based.
  • The customer sells their property and transfers the mortgage to another property.
  • The customer (or the last surviving customer) moves to long term care.
  • When repayment takes place after the customer’s death (or the death of the last customer).
  • The early repayment charge term of the mortgage has expired.
  • Contact us for your free brochure on Lifetime Mortgages or Home Reversion plans or email: axess2@btconnect.com