If you are over 55, you might want to consider how you are going to fund your retirement. Alternatively, you might already be retired and considering ways with which to improve your financial position. Either way, if you own your own home (even if there is an outstanding mortgage), one option you might want to consider is that of equity release – either by the use of a “Lifetime Mortgage” or a “Home Reversion” plan.
What is a Lifetime Mortgage?
A Lifetime Mortgage allows you to release cash (or “equity”) from your property without the expense, upheaval and possible emotional impact of moving home. To be eligible for this type of arrangement, you need to be a UK homeowner and (usually) at least 55 years of age. Some lenders apply an upper age limit but not all. The older you are, the more money that you can release. The capital can be spent on almost anything – home improvements, a holiday, repaying credit cards, helping out other family members such as children (or grandchildren) – or simply to help with everyday expenses. With a Lifetime Mortgage there are typically no monthly repayments to be made as the interest is “rolled-up” and is usually paid off (along with the capital) on death or a move into long-term residential care. The debt is usually guaranteed never to exceed the value of the house, so it is not possible to leave a liability to your successors. Most Lifetime Mortgages are “portable”, meaning that if you wish to move home in the future, the mortgage can be transferred (or “ported”) to the new property.
There are many Lifetime Mortgage products and providers, so it is important to talk to us about the options and suitability to your own particular circumstances.
Lifetime Mortgage options
There are numerous options available, including variable interest rate mortgages (where the interest rate payable fluctuates, either in line with the lender’s own rate or the Bank of England Base Rate) and fixed rate mortgages (where the rate is guaranteed).
Further, depending on your requirements, there are mortgages that provide a lump sum only (typically used for home improvements, holidays, etc.), mortgages that offer a cash “reserve” (i.e. access to an initial lump sum but with access to further additional funds when and if required), as well as mortgages that provide a regular withdrawal facility (often used to assist with everyday outgoings). Obviously, the latter options can work out cheaper than borrowing a large initial lump sum because interest is only accrued on the actual borrowing (not the available facility).
What is a Home Reversion plan?
As with a Lifetime Mortgage, a Home Reversion plan allows you to release cash from your property without having to move home and the eligibility criteria are similar, with the amount of money able to be released increasing with age. The capital can similarly be spent on almost anything and there are typically no monthly payments to be made (although you remain responsible for the maintenance of the property).
However, unlike a Lifetime Mortgage (where you retain ownership of the property), with a Home Reversion plan you sell all (or a part) of your property in return for a tax-free lump sum, a regular income – or both. The amount you would receive is less than the market value of the proportion sold since you are permitted to live in the property as a tenant, usually with no rent being payable. On death (or a permanent move into residential accommodation), the proceeds from the sale of the property are apportioned between your estate and the Home Reversion plan provider. So, for instance, if you sold half of your property, the Home reversion provider would receive 50% of the proceeds. If you sold the entire property, they would get all of the proceeds.
Another difference between a Lifetime Mortgage and a Home Reversion plan is that a Home Reversion plan is not “portable” – in the event of the sale of the property, the Home Reversion provider receives their proportion of the proceeds of the sale.
As a result of these differences, Home Reversion plans are usually (but not always) the preference of those with no children or relatives that they would wish to benefit on their demise. However, as with Lifetime Mortgage products and providers, professional, independent advice is essential so it is important to seek advice from us.
Equity released from your home will be secured against it..
Lifetime Mortgages and Home Reversion Plans are not for everyone and can be a complex subject. Not all financial advisers are qualified to give advice in this specialised area. It is important to be aware that any kind of Equity Release can be expensive and will reduce the value of your estate available to pass to your heirs. It may be necessary to involve family members in the advice process. There may be implications in respect of tax, state benefits and long-term financial planning.
For further advice, talk to us!