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Unlocking the secrets of equity release: What you need to know

05 Oct 2023 | Written by Catriona Smith

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This article was authored by Catriona Smith an Independent Financial Adviser with Chase de Vere.

In recent years, equity release has appeared on the radar for many. Its surge in popularity over the last two decades can be attributed to various reasons, one being the increasing property values that have provided homeowners with an avenue to access capital. Before we delve deeper into its intricacies, it’s essential to clarify: this article is for informational purposes only and is not a recommendation for equity release.

What exactly is equity release?

In its simplest form, equity release is a mechanism that allows homeowners to unlock the equity (or the trapped value) in their property. It’s like accessing a pot of savings you’ve built up over the years by owning your home. Instead of taking a traditional mortgage route and making monthly repayments, with equity release, the interest typically rolls up.

This rolling-up of interest means that instead of you paying it out monthly, it’s added to the loan and accumulates over time. The loan plus the rolled-up interest is then typically repaid when the homeowner sells the property, moves into care or passes away.

A few key points:

  • You need to be over 55 to be eligible, although some providers may have a higher age requirement.
  • The sum you can borrow hinges on two factors: your age and the property’s value. It typically ranges from 17% to 55% of the property’s value.
  • It’s essential to note that the amount borrowed through equity release is treated as a first charge on the property.
  • Restrictions might apply based on the property type and its condition.

Why consider equity release?

The rise of the equity release market in the last 20-25 years is a testament to its value for many. Some potential reasons include:

  • Home improvements: Whether it’s for urgent repairs, modern upgrades or accessibility adaptations.
  • Daily expenses: Covering the costs of daily living can sometimes be a challenge, especially post-retirement.
  • In-home care costs: Ensuring you get the necessary care without the need to move.
  • Life’s special moments: Maybe it’s a dream holiday or a long-awaited visit to distant relatives.
  • Helping loved ones: Offering financial support to family or friends.
  • Debt management: Handling outstanding debts, especially if you’re nearing the end of an interest-only mortgage without the means for a lump sum repayment.
  • Navigating life’s challenges: Whether due to divorce, separation or the loss of a partner, sometimes finances tighten and staying in one’s home becomes challenging.
  • Avoiding downsizing: Equity release can sometimes serve as an alternative to selling and downsizing when in need of capital.

While the above points might make equity release seem like a perfect solution, it’s crucial to remember that it isn’t suitable for everyone.

The importance of informed decisions

As specialist advisers, our goal isn’t to promote, but to inform. Taking out a lifetime mortgage, like any financial commitment, comes with its implications. For instance:

  • It might affect state benefits.
  • The rolling-up of interest could reduce or eliminate the inheritance you leave behind.
  • Early repayment might come with penalties.
  • The property’s value may not always cover the rolled-up interest, leaving a debt to be settled.

Equity release requires careful consideration. It’s essential to understand the risks involved, including the potential for rolled-up interest to exceed property value. Always seek specialist advice before making a decision.

If you’re keen to dive even deeper, don’t miss our live online event on 26th October. You’ll come away with a comprehensive understanding of how equity release could significantly impact your retirement. Whatever your goals, our experts will provide you with the information you need to make informed decisions about your financial future.

This is a lifetime mortgage (home reversion scheme). To understand the features and risks, ask for a personalised illustration.

A note from The Joy Club:

This article was provided by Catriona Smith and Chase de Vere. We know that financial planning and education are extremely important to our members and that you would like to see more finance-focused content within The Joy Club community. That’s why we are very excited to partner with Chase de Vere – one of the UK’s leading national independent financial advisers – to bring you high-quality, expert-led financial content.

What’s more, Chase de Vere is offering members of The Joy Club a complimentary initial consultation with a Chase de Vere expert adviser, should you so wish. It’s a perfect opportunity to explore your options with a highly qualified independent adviser and learn how to navigate the world of financial planning with greater ease and confidence.

To book your complimentary consultation, simply submit an enquiry via Chase de Vere’s dedicated online form. After that, a member of their team will be in touch to finalise your initial consultation, either by phone or video call.

The Joy Club will receive a small commission from Chase de Vere on any services you make use of beyond the initial complimentary consultation.

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