Are you property-rich, but cash strapped and are looking for a way to get some extra finances to help pay off that mortgage or pay for your grandchild’s fees? Well, according to various financial experts, the most stress-free solution, especially after retirement, is to take out an equity release plan.
In fact, as per UK’s most prominent equity release1 companies, since the beginning of 2020; the market hit a new record with retirees withdrawing over 5 billion of property wealth in 2018 via some 30,000 plans. The demand for equity release plans on residential estates is booming, and with the hasty and continuous increase in property values, this trend is predicted to continue. It seems very simple, right? Well, as it is with lots of things in life, it isn’t as straightforward as it looks.
What Is Equity Release?
Equity release is the best way for you to access some of the capital tied up in the value of your house without having to relocate. The mortgage scheme features various options that allow you to release cash by either taking out a mortgage secured against your estate or selling a part or all of your estate. With either of the schemes, you get to live in your residence until you die or move out permanently.
Depending on the scheme you choose, you can release the capital either as a lump sum or through monthly instalments2, and you have the freedom to use the equity you free up as you wish.
The Advantages of Equity Release
Equity release offers you various perks. Some of these include:
- You receive tax-free money to spend as you wish – you don’t have to pay income tax or capital gains tax on the cash you release from your estate
- You have the freedom to continue living in your home – according to the Equity Release Council’s rules, taking the mortgage shields you from downsizing or going through the difficulties that come with relocating to a new estate
- Depending on the equity release company you select, you don’t have to make any monthly repayments unless you want to – as per the contract that comes with the equity release plan, you make all the payments when you die or move into permanent care
- You won’t owe more than the initial value of your residence – thanks to the ‘no negative equity guarantee, offered by the Equity Release Council3 (ERC).’ It also ensures that no liability can be transferred to your family after the plan provider puts up your estate for sale
However, in as much as the mortgage plan is your best option, it can be the most confusing financial plan, and therefore, there are some things you need to keep in mind about it:
- Ensure that you don’t borrow the full amount in one go – the sooner you take out the mortgage, the more expensive it’ll be in the long run, since the interests accrue overtime.
- As per the FCA’s regulations4, before taking out a plan, you have to ensure that the equity release firm is a registered member of the Equity Release Council (ERC). The trade body’s members, as per the law, should make sure that they offer you the ‘no negative equity’ guarantee, so your residence will never owe more than your home is worth
- Before taking out a mortgage plan, you also have to ensure that you get the right financial advice, as per the ERC’s regulations.
Equity release is a financial commitment. Therefore, it can be one of the most vital decisions you’ll ever make. It also comes with lots of features, and thus there’s a lot for you to consider. Remember, this scheme can be the stepping stone to the most memorable time in your retirement!