Equity Release, could unlocking the equity in your home help provide a more comfortable financial future?

The range of available products to borrowers has increased over the years and you can now benefit from this increased choice of equity release plans that let you release tax-free cash from the value of your home. This is not just for new borrowers who wish to utilise the equity in their home though, homeowners who have existing equity release loans could save money by reviewing their plan and moving to cheaper and more flexible deals.

What is an Equity Release Loan?

An equity release loan lets homeowners, aged 55 or over, access the cash locked up in the value of their property (the “Equity”). One of the most common types of equity release is called a lifetime mortgage. Borrowers can usually release as little as £10,000 or as much as 60% of the value of their property. It can help boost your pension income, which can be beneficial amid concerns about the rising cost of living – especially with the higher costs for energy, food and clothes that we have seen recently. The money you access is tax-free, so you don’t have to worry about a bill from HMRC. This is a loan secured on the value of your home but unlike a traditional mortgage, the interest and repayments are rolled up and only have to be repaid if you move into care or by your loved ones once you die.

What are the risks with Equity Release?

There are risks with equity release as there are with many financial products and this is why seeking professional advice is really important. For example, the extra cash will boost your income, which could affect your entitlement to benefits such as Pension Credit.  In addition, the debt will need to be settled once you move into care or pass away. This may mean your beneficiaries will need to sell the family home, something that can be upsetting to family members and is why we recommend that you inform loved ones of what you have done or are considering doing. Some Equity Release plans allow you to reserve a portion of the proceeds of the sale of the property to leave as an inheritance but it is still important to inform your loved ones of your plans to avoid any disputes.

As it is a regulatory requirement that any borrowers who are considering utilising equity release get advice from a regulated equity release adviser before taking out these products, to ensure they understand all the risks and make an informed decision before proceeding.  Blackthorn Financial Services Ltd provide our initial meeting for free. If you do choose to proceed and your case completes, we would then be renumerated by way of a procuration fee from the equity release provider.

I already have an equity release plan; can I switch to a new deal?

Existing borrowers don’t have to settle and keep the original plan they take out, they could save money on interest that accumulates by regularly reviewing their deal with a regulated equity release adviser and switching if they can save money.

What you need to know about switching your equity release plan

You can switch your equity release plan as you do with standard mortgages, but you will need to have had your existing plan for at least 12 months normally. Some providers have been introducing added flexibility such as letting borrowers make voluntary repayments (like an over payment on a standard mortgage) or move home while keeping the loan. Some of the products will also allow the borrowers to drawdown partial sums rather than the full amount, meaning you save money by only paying interest on the amount you have actually taken. Interest rates may have reduced over the last 10 years for people who took out an Equity Release plan, switching to a new lower rate will reduce the interest being applied and rolled up into their equity release loan which could equate to thousands of pounds saved over the lifetime of the mortgage.

Is switching my Equity Release plan right for me?

For some borrowers, changing plans might not be the right thing for them currently, but it is still worth keeping an eye on the market in case better deals and plan terms emerge or if any penalties on your existing plan reduce or end making the option of a switch suitable.

One of the most common reasons that people don’t change is that the loan-to-value (LTV) ratio is too high (how much the loan is against the properties value).  Another major factor is the early repayment charges (ERC) on the original loan.  An ERC, or exit fee, for ending your current deal and switching to a new one may outweigh any benefits of switching especially in the early years of the loan. At Blackthorn Financial Services Ltd our specialist equity release adviser will be able to check the costs of your current plan and compare with any new rates to see if it is worth switching before we proceed.

How do you switch your equity release plan?

At Blackthorn Financial Services Ltd we offer you a free review of your existing plan to find out if changing plans is an option.  We sell lifetime mortgages only. We do not sell home reversion plans. Our adviser will check if you qualify for the latest plan developments and will look at the amount outstanding on your equity release plan including any interest that has accrued and any penalties/Early Repayment Charges.  Our adviser will explain that the lifetime mortgage is secured against your home and that the loan, plus the interest, will be repaid once you die or move into long-term care. As part of the free review, they will provide you with a personalised illustration to explain all of the features as well as the risks involved, whilst providing you the time to consider your options.

If you have any questions or would like a fee free initial review of your circumstances then please contact Lawrence Newell our specialist equity release adviser.