People today are living and working longer than their predecessors. So, we have more options to access the savings and investments made over our lifetimes, and more control over how we enjoy the money we’ve saved.
But many of us forget that we’re sitting on our largest single investment: our homes. Many of them have grown greatly in value, creating a generational rise in property wealth.
That’s where lifetime mortgages come in. They’re a form of equity release, so can be a great way of releasing cash that’s tied up in your home, without having to sell up and downsize.
That’s not to say that downsizing is a bad idea. It can be a great way of accessing funds from your home. But for many people, it isn’t a practical way to access their investments. Or it could be that they just don’t want to move out of their family home or away from loved ones.
Whether equity release is right for you will depend on your circumstances, as there’s plenty to consider. We’ve put together this article to:
- Bust some common equity release myths
- Show you how it’s helped some of our customers
- Help you to decide whether it’s right for you.
Is equity release safe?
A lifetime mortgage is a type of equity release, a loan secured against your home, and is regulated by the Financial Conduct Authority (FCA). We’re also a member of the Equity Release Council, which means we uphold its high standards of conduct.
You can only take out equity release through a qualified financial adviser, who will make sure it’s right for you. To find out more about how equity release works, visit our equity release page.
What’s the cost of equity release?
The cost of taking out a lifetime mortgage or other equity release product will depend on your provider. Like the mortgage you initially took out on your home, there are upfront costs, such as arrangement and solicitors’ fees.
There are a few options for paying back the interest, which is fixed for life. You can choose to pay all, some or none of the interest each month. And anything you do pay, will help reduce the overall cost of the loan, meaning you could leave more of an inheritance to your loved ones when your home is sold.
If you choose not to pay back the interest, it will be added to the loan every month. This is sometimes called compound interest, or rolled-up interest. The loan is usually repaid when the last borrower dies or moves into long-term care.
On the plus side, there’s no need to worry about negative equity – our lifetime mortgage comes with a no negative equity guarantee, meaning you will never owe more than your home is worth. Terms and conditions apply, and there could be cheaper ways to borrow money.
Can I sell my house if I have equity release?
Yes, you can. A lifetime mortgage is a loan secured against your home, which can be transferred to your new property.
But your lender will need to be happy with the new property. As an example, there are some kinds of housing we don’t lend against – for example, properties with thatched roofs. Remember, too, that if you downsize, you might end up paying back some of your loan. That could trigger early repayment charges.
If you are selling your property and not transferring to a new property, the loan will need to be repaid and there could be substantial early repayment charges to pay.
We’ll make sure none of that comes as a surprise to you.
Can equity release affect inheritance tax?
A lifetime mortgage will affect how much you can leave to family and friends.
You can use equity release to give your loved ones an early inheritance – or ‘living inheritance’. As lifetime mortgage customers John and June found, gifting money to family can give you the satisfaction of helping them when they need it.
“It makes me feel great, because we can help our children through a crisis, without having to sell our home when we don’t want to do that, or change our lifestyle,” June told us.
But if you pass away within seven years, your children may have to pay inheritance tax on the gift you gave them. You can find out more about inheritance tax.
How can equity release support your estate planning?
There are a few ways you can protect your family’s inheritance. If you want to leave a fixed amount, you can protect some of your home’s value by choosing a product with an inheritance protection. That’ll cut down the amount you can borrow, but it means a set amount will remain to be passed onto your family or friends.
You can pay back some or all of the interest on your loan, reducing the amount you owe and leaving more for your family to inherit.
For John and June, knowing that they have a fixed lifetime mortgage interest rate, compared to the uncertainty of inheritance tax rates in the future, reassured them that they were making the right choice for their family.
“You’re in control from the start,” John said of our lending process. “You know exactly what money has to be paid back at any stage, and what the penalty clauses are.”
“It keeps you on your toes,” he added. “We want to make sure we keep the property in really good shape so there’s no reason why, if June is still here in 25 years, the value of the property won’t have gone up significantly.”
So, is equity release right for me?
Like all financial products, equity release isn’t right for everyone. But for some people, unlocking money tied up in property can make a real difference, whether they’re looking to make some home improvements, gift money to family or consolidate debt. Think carefully before securing other debts against your home.
It can be a complicated decision. So it’s important to get good financial and legal advice, and to speak to any family members it may involve. That’s why lifetime mortgages can only be taken out through qualified financial advisers. They’ll help you understand:
- Whether equity release is right for you
- Which equity release product is best for you.
Visit our equity release page to find out more. If you’d like to hear more about John and June’s story, watch our video on how a lifetime mortgage made their everyday retirement life that little bit sweeter.
Lifetime mortgages are available to homeowners aged 55 or over.