Equity release offers a way to free up capital in your home without the need to sell the property. It does, however, come with its risks. Here, Lakeside Technical Specialist, Adam Chambers talks through the key considerations and possible pitfalls.

What is equity release, and how does it work?

A: Put simply it’s a way of using the equity in your property to provide you with a lump sum of money for your use, or an income without you having to sell your home.

Who is eligible, and what tend to be the key reasons for releasing equity?

A: Only those aged over 55 can apply for equity release. You don’t need to have paid your mortgage off in full, but there will be a limit to how much an equity release provider will lend you.

Common reasons for releasing equity include repaying a standard mortgage, consolidating debt, gifting to children or grandchildren or perhaps to supplement pensions or savings. Meanwhile, those who don’t have anyone to pass their estate onto when they die may release equity purely to enjoy the money in their later years, spending it on luxuries like holidays.

What are the key risks and costs involved?

A: Fees vary depending on the lender, but people applying for equity release need to be mindful of the fact they could incur valuation, legal, advice and lender fees.

When the property is sold, or the last occupant goes into long term care, the lender will need to be repaid. The amount to repay to the lender will be the original amount borrowed plus all of the interest which has built up over the years, this means that whoever inherits the property will not get the full value of the property

What would your advice be to those considering equity release, and can you briefly outline the process of doing so?

A: First and foremost, we would always suggest discussing your potential plans with your family as it will affect the amount they will inherit.

It’s worth considering other ways to raise money before committing to an equity release, such as personal loans, remortgaging or possible government grants. You should also consider downsizing from your current property before looking at equity release.

It’s essential to speak with a qualified adviser to make sure you are aware of all the potential risks involved, along with the benefits, they can then handle the market research and much of the administration process for you.

 

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Please feel free to contact us for further information: admin@lakesidefs.co.uk

First published on February 15th, 2021

The information provided above is believed to be correct at the time of publication and is provided for information purposes only, it does not constitute advice. Any reference to interest rates or growth rates are examples only and are for illustrative purposes only. You should seek independent financial advice before making any decisions about your finances and financial products. We accept no liability for loss as a result of any action taken based on the information on this page where appropriate independent financial advice is not taken from Lakeside FS Ltd.