Who are equity release plans designed for?

You may have seen adverts for schemes that release equity from your home in order to draw cash against the value of your property. These adverts are usually targeted at older homeowners so that they can continue to live in their homes for the rest of their lives, without making repayments, with the lender taking equity in the property.

These release schemes are designed for homeowners aged 55 and over and the sum that can be released depends on the value of the property and the age of the younger applicant. Two types of scheme exist, home reversions and lifetime mortgages – and the latter is by far the more common.

When did these schemes come into use?

We may associate https://www.parachutelaw.co.uk/equity-release equity release schemes with TV advertising of recent years but they have actually been around since the sixties, although in a limited way. This specialist market began to gain traction in 2010, and within eight years the sums released had quadrupled.

In the 1980s the market struggled from a lack of client protection and regulation and consumers became hostile toward these types of mortgages, suspicious of companies offering them. However, the market has been greatly tightened since then and it is considered to be far safer. Money is now being released in a way that suits customers and which allows them to secure their finances if they don’t have other sizeable financial pots, such as pensions or savings.

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What can released funds be used for?

Released funds can be used for many purposes. Common examples are for home improvements, paying off other matured mortgages, loans, credit cards or other forms of debt, giving gifts to the family such as a house deposit, to top up monthly income for living costs, buying a motorhome or caravan or providing long-term care.

Released funds can be used by the applicants for any purpose, and the provider generally doesn’t get involved in what it is spent on – provided that it is legal. Sometimes reserve funds are offered so that the released equity can be accessed in stages.

Are equity releasing mortgages protected?

Yes, these are now far more protected than in the past and applicants know that they are taking out a plan for life, which requires plenty of advice and consideration beforehand. These mortgages are now FCA-regulated, meaning that lenders have to operate according to a strict code of conduct. This requires providing plenty of clear and unbiased information to applicants and ensuring that they understand the features of this type of mortgage before making an application.

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For example, releasing equity from a property will reduce the amount that may be available for future inheritance. There are also fees to take into account, and these lending products may not be suitable for all people, even if they do own their own homes. Furthermore, the equity that is released may affect the customer’s future benefit entitlements and also their rights to care provision.

Getting the right advice

Before considering an equity-releasing mortgage, it’s important to understand the features of any product you are being offered and to compare the offers from different lenders. Each lender will use different interest rates, calculations and fee schedules, as well as offer different acceptance criteria. It’s also important to speak to any dependents who may live with you in the property who would be affected by a lifetime mortgage.

Legal advice is highly recommended for a considered decision that fits with your needs, and to check that other financial products may not be more suitable for your circumstances.