Equity Release Plans

The two main types of Equity Release plans are Lifetime Mortgages (including Drawdown) and Home Reversion, with Home Income plans also available.

Lifetime Mortgages

A Lifetime Mortgage is a form of Equity Release that enables your client to borrow a sum of money secured against their home, whilst retaining full ownership of the property. Depending on their Equity Release Requirements, the money can be taken as a cash lump sum, regular monthly payments, drawn down as required (know as a drawdown facility), or a combination of these, and they may also have the option to release further cash in the future.

The majority of Lifetime Mortgage plans do not require any repayments, instead rolling-up the interest into the initial loan amount at a fixed rate of interest. When your client passes away or moves out of their home the property is sold, with the money from the sale being used to pay off the original loan plus any interest that has accumulated over the loan period. Typically, LTV’s of between 15-45% of the property value are available with a Lifetime Mortgage, although this is dependent on a number of factors, primarily the clients age.

Benefits include:

Clients can release a tax-free cash lump sum, regular income, drawn down as required, or a combination of these
Your client retains full ownership of their home
Some plans allow clients to guarantee an inheritance
Most plans do not require any monthly repayments to be made
Some plans offer multiple cash releases as required
All plans offer a No Negative Equity Guarantee
Applicants aged 55 or over are eligible

But remember:

Roll-up interest can accumulate quickly
The amount left as inheritance will be reduced
Some providers apply early repayment charges
Clients tax position and eligibility for state benefits may be affected

Home Reversion Plans

Home Reversion involves a client selling part or all of their home to a reversion provider for a tax-free lump sum, regular income, or both. A guaranteed lifetime lease means they can continue to live in their home for the rest of their lives, with no monthly repayments to meet.

Age is a primary factor in determining the percentage of equity released from the survey value of the home. Other factors, such as gender and the estimated future value of the property, are also taken into consideration. Any outstanding mortgage or secured loans that your client has when entering into a Home Reversion plan must be repaid on the initial sale of the property to the reversion provider.

Benefits include:

Tax-free lump sum
Guaranteed lifetime lease
No monthly repayments
Clients can guarantee an inheritance (Partial Release plan)
Clients can continue to benefit from any increase in property values (Partial Release plan)

But Remember:

Eligibility for state benefits may be affected
Tax position could be adversely affected
Clients will live in the property under the terms of a secure tenancy, which will mean adhering to all of the terms of the lease
Clients will not benefit from an increase in property values (Maximum Release)
It is not possible to leave a legacy from the property to your beneficiaries as an inheritance (Maximum Release)
Clients will not receive the full market value of the property when they undertake a Home Reversion plan

If you have any queries, please visit our Frequently Asked Questions or alternatively call us on freephone 0800 088 4006 and our specialist team will be happy to help.