Equity Release: Top 10 Questions Answered

Here are the answers to the top 10 legal questions regarding equity release that you should consider before deciding whether equity release is right for you.

Why are the interest rates so high compared with base rates?

Equity release plans are only repayable when the homeowners vacates and sells the property or upon the death of the homeowner. Equity release providers have no way of knowing when this will be; therefore they have to be able to fund their scheme on a long-term basis.

Taking a more longer-term view than normal mortgage providers means equity release providers have to set a higher interest rate. However, as the competition in the market between lenders intensifies these interest rates could well lower.

Who are SHIP, and SAFER & what do they do for me?

SHIP stands for Safe Home Income Plans. They are a trade body of equity release providers who promote and secure the reputation of equity release to the general public.

SHIP ensures their members – providers of equity release plans – comply with their SHIP code of practice and provide certain guarantees to their equity release borrowers. However, membership of SHIP is voluntary so not all equity release providers will have SHIP approved plans. [Currently 90% of the marketplace are SHIP members]

All borrowers taking a SHIP approved equity release plan must gain independent qualified legal advice before completing the scheme, to ensure they fully understand the legal implications of releasing equity from their home prior to completion.

SAFER stands for Specialist Advisers For Equity Release. Established in 2008, it’s an alliance created by the leading specialist intermediaries in the equity release sector with its members have signed up to a Code of Practice. The purpose of SAFER is to improve the standard of advice that consumers receive when considering equity release.

Will I be able to remain living in my home for the rest of my life?

Yes. All SHIP members guarantee that you’ll be able to remain living in your home for as long as you want or need to.

If you decide to leave the property and move into long-term care or live with relatives, then your property would need to be sold to ensure the loan is repaid. [Some lenders may even allow you to arrange care in your home]

If I want to move house in the future, what happens then?

If you would like to move home in the future and buy another property, the SHIP guarantee would give you the right to transfer your plan to a suitable property without any financial penalty.

However, if you were to moving into a lower value property you may have to pay back part of the outstanding mortgage.

If you would like to move home but not transfer the equity release plan to your new property the mortgage would have to be paid off in full. So if you were to move out of your home into a care home or with relatives then you would have to pay back the mortgage.

You should always check the terms and conditions on your equity release plan to see if there are any payments due to the lender for early redemption.

Does a lifetime mortgage or home reversion plan affect my benefits or tax?

This varies from person to person, so it’s best to discuss this with an independent financial advisor. The general position, as it stands in June 2009, is:

Stamp Duty
There will be no stamp duty to pay as long as the equity released is not being used to purchase a property or as a way of transferring ownership of a property.

Inheritance Tax
If you take out an equity release plan on your home, then the equity is reduced by the amount of the plan taken out and, consequently, the value of all your assets left upon your death will be reduced as a result.

Therefore, this also reduces any inheritance tax that would otherwise be payable. Currently, the value of a persons estate is only subject to inheritance tax if it exceeds £312,000.

Pension and state benefits
An equity release or home reversion plan will not affect your state pension or any income from an occupational pension scheme or personal pension.

However, pension credits and other state benefits may be affected if it means your income or savings will rise above the limits specified by the government, as a result of your equity release plan.

Should I use a specialist lawyer?

Yes. It is important you receive high quality legal advice from a qualified lawyer who has specialized experience in equity release. This ensures that you receive a balanced view on equity release, and expert advice as to the pro’s and con’s on whether it’s the right financial decision for you.

A specialist lawyer will have an expert knowledge of the equity release process, and have efficient and speedy process for completions in place – saving you money on legal fees.

Does my name still appear on the title deeds as the homeowner?

If you choose a lifetime mortgage plan, then yes you will continue to own your property. Your lender will still insist on placing a charge on the property title to protect their own financial interest.

It’s slightly different if you choose a home reversion plan as it involves selling part, or even all, of your home to a home reversion plan provider so it could depend on the % you sell. If you were to sell 100% then your home reversion provider will definitely become the legal owners and be named on the title deeds.

What happens if my equity release provider folds?

If your equity release company folds after your plan is completed then it will inevitably be passed onto a new provider; your new provider will be legally bound by the terms and conditions of the original loan so you won’t ever be forced to repay the loan.

Will my family inherit my debt if I die?

The general rule is the debts would be paid from any money or assets you would leave behind. Your family would inherit the amount left after payment of all your debts. So whilst they wouldn’t inherit your debt as such, their inheritance could suffer.

Some of the equity release plans on the market offer a ‘no negative equity’ guarantee, which means the provider will not claim against any other asset other than your home.

All SHIP governed providers carry the ‘no negative equity’ guarantee, so any debt owed would come out of your home and no debt will ever be taken from your other assets.

Will I have to change my will?

Releasing equity from your home will have a financial impact on your estate, so it would be prudent to take it into account in your will as the amount of any gift, legacy or donations you intended to make could be affected.

For no-obligation advice on whether equity release could help you and information on the best plans please call our 24 hour helpline and speak to one of our advisors:

Or use the comments box below to ask a question.

Equity Release may involve a Lifetime Mortgage or Home Reversion Plan. To understand the features and risks ask for a personalised illustration.

Age Partnership provides initial advice at no cost and without obligation. Only if you choose to proceed and your equity release case completes would a typical fee of 1.5% of the amount released or £795 be payable.

Important things to consider about equity release:

• Equity release could affect your current or future entitlement to means-tested benefits
• Releasing equity to spend in your lifetime can reduce the amount that is left in your estate when you pass away

Related posts:

1. Considering Equity Release in 2010? Equity Release Questions Answered.
2. 7 Questions to Ask an Advisor About Equity Release Schemes
3. Is an Equity Release Lifetime Mortgage for you?