The truth about equity release

More and more homeowners are drawing cash from their property – Melanie Wright has the facts

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Growing numbers of older homeowners in the UK are turning to equity release to supplement their retirement income.

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A record £3.94bn of property wealth was unlocked in 2018, according to the Equity Release Council, with 83,000 homeowners accessing equity from their homes. Yet there are still misconceptions about the way such a scheme works.

Here, we take a look at some of the most common questions asked about equity release.

Remember, you must seek professional financial advice if you’re thinking about releasing equity, as it won’t be right for everyone.

WILL I BE ELIGIBLE FOR EQUITY RELEASE IF I’VE STILL GOT A MORTGAGE?

Yes, you can apply for equity release if you’re still paying a mortgage on your property, but you must use some of the funds released to pay off this mortgage.

Paying off existing mortgages and other debts is one of the most popular reasons why people release equity, as it means they no longer have monthly payments to make.

Instead interest on the amount borrowed rolls up over time and is only repaid when you die or move into long-term care.

However, do bear in mind that equity release rates are higher than on standard mortgages, and the amount of debt you owe can build up quickly.

CAN I RELEASE EQUITY MORE THAN ONCE?

Yes, if you’ve chosen a type of equity release plan known as a drawdown lifetime mortgage, you can take an initial lump sum and then release further amounts later on as and when you need it.

The main advantage of releasing equity gradually is that interest only builds up on the money you’ve released.

IF I DIE, DOES MY PARTNER HAVE TO PAY OFF WHAT I OWED?

If you’ve released equity jointly, then your partner can stay in the property once you’ve died and will only need to repay what’s owed once she/he also dies or moves into long-term care.

However, if the equity release plan is only in your name, then unless your partner can repay everything that’s owed when you die, the property will need to be sold and they will have to find somewhere else to live. If you’re considering equity release and have a partner, it’s therefore vital to take out a plan in joint names.

IF I TAKE OUT AN EQUITY RELEASE PLAN, CAN I MOVE HOUSE?

Check the small print of the equity release plan you’re considering, but most providers will allow you to move to a “suitable alternative property” if you decide you want to move house.

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There are some properties that they may not accept, however. For example, you can’t generally move to a flat in a local authority block of more than four storeys, or a retirement property, because these properties may be harder for the equity release provider to sell on the open market.

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