Understanding Equity Release Schemes in the UK and How They Can Reduce Your Liability to Care Fees
Many retired homeowners these days have heard of equity release but decide against it because they do not need extra money, so it is not for them. However there may be other reasons for equity release apart from raising funds, such as making provisions for beneficiaries against Inheritance tax or care fees planning. Most people that proceed with an equity release scheme decide on a lifetime mortgage rather than a home reversion plan as the latter involves sacrificing partial or total ownership.
Equity release in the UK is a name used for converting the debt free part of your home into cash. The minimum age for everyone including couples is normally aged fifty five attained. It is possible to obtain 15% to 50% of the value of your property. Older people are able to access larger amounts relative to their ages.
The money can be used for any purpose such as improving lifestyle in retirement, helping children or grandchildren with a mortgage deposit or paying for care at home avoiding the need to enter residential care.
When people need to move into residential care and their assets such as home and savings are worth over £23,250 they have to pay for their own care. Therefore the cash from the sale of an elderly person's home could quickly reduce because the average cost of care in the UK is over £30,000 annually. However people who take out equity release schemes at a time when they are in good health and before the need for care is apparent, will at least have benefited from the money released.
In the past equity release schemes had a bad name mainly because of rising interest rates and falling property values. The schemes of today are very different. Lifetime Mortgage and Home Reversion providers have learned valuable lessons from the plans marketed in the late1980s. An organisation called SHIP (Safe Home Income Plans) was set up in 1991 and members must adhere to a strict code of conduct including the right to live in your home for life, freedom to move home without penalties and no negative equity liabilities in respect of Lifetime Mortgages.
There are two main types of equity release schemes in the UK, Lifetime Mortgages and Home Reversions. A lifetime mortgage provides a cash lump sum that is tax free from your main residential property. Repayments are unnecessary as they can be deferred until the property is sold, usually when a person dies or moves into residential care. At this stage the original advance plus accrued interest is repaid. A very popular version of the lifetime mortgage is the drawdown option where you can take small lump sums as and when required. This avoids loan interest accumulating on a large lump sum that may not be used for some time into the future. People who take out a Lifetime Mortgage in the UK usually choose a fixed rate of interest for life so they know the amount outstanding at any point in the future.
Home Reversion equity release schemes are a sale of all or a part of your property in exchange for a guaranteed life time tenancy. When the property is sold the investor is entitled to the proceeds on their share of the property including any appreciation. Home Reversion Plans are not as popular as Lifetime mortgages, but can release much more money without involving a loan. Home Reversions are often attractive for older people who are unconcerned about leaving an inheritance and those who believe that property prices will not increase much in the future or may even fall in value.
There are a variety of equity release schemes offered by a number of UK companies, some of whom offer them direct to the public as well as through independent advisers. It is therefore strongly emphasised that you should seek independent advice to find the most suitable and competitive plan for your circumstances. Normally you should not need to pay any extra for this unbiased service and you may actually save money. Specialist independent financial advisers that focus entirely on Lifetime Mortgages and Home Reversion Plans are often able to negotiate preferential terms. For instance, one quarter or half a percent shaved off an annual fixed lifetime rate could add up to substantial savings over the lifetime of an equity release UK mortgage. An equity release risk calculator can help you to assess not only potential future risks, but also the positive effects of obtaining a specially negotiated interest rate discount from your independent specialist.
Equity release in the UK is a name used for converting the debt free part of your home into cash. The minimum age for everyone including couples is normally aged fifty five attained. It is possible to obtain 15% to 50% of the value of your property. Older people are able to access larger amounts relative to their ages.
The money can be used for any purpose such as improving lifestyle in retirement, helping children or grandchildren with a mortgage deposit or paying for care at home avoiding the need to enter residential care.
When people need to move into residential care and their assets such as home and savings are worth over £23,250 they have to pay for their own care. Therefore the cash from the sale of an elderly person's home could quickly reduce because the average cost of care in the UK is over £30,000 annually. However people who take out equity release schemes at a time when they are in good health and before the need for care is apparent, will at least have benefited from the money released.
In the past equity release schemes had a bad name mainly because of rising interest rates and falling property values. The schemes of today are very different. Lifetime Mortgage and Home Reversion providers have learned valuable lessons from the plans marketed in the late1980s. An organisation called SHIP (Safe Home Income Plans) was set up in 1991 and members must adhere to a strict code of conduct including the right to live in your home for life, freedom to move home without penalties and no negative equity liabilities in respect of Lifetime Mortgages.
There are two main types of equity release schemes in the UK, Lifetime Mortgages and Home Reversions. A lifetime mortgage provides a cash lump sum that is tax free from your main residential property. Repayments are unnecessary as they can be deferred until the property is sold, usually when a person dies or moves into residential care. At this stage the original advance plus accrued interest is repaid. A very popular version of the lifetime mortgage is the drawdown option where you can take small lump sums as and when required. This avoids loan interest accumulating on a large lump sum that may not be used for some time into the future. People who take out a Lifetime Mortgage in the UK usually choose a fixed rate of interest for life so they know the amount outstanding at any point in the future.
Home Reversion equity release schemes are a sale of all or a part of your property in exchange for a guaranteed life time tenancy. When the property is sold the investor is entitled to the proceeds on their share of the property including any appreciation. Home Reversion Plans are not as popular as Lifetime mortgages, but can release much more money without involving a loan. Home Reversions are often attractive for older people who are unconcerned about leaving an inheritance and those who believe that property prices will not increase much in the future or may even fall in value.
There are a variety of equity release schemes offered by a number of UK companies, some of whom offer them direct to the public as well as through independent advisers. It is therefore strongly emphasised that you should seek independent advice to find the most suitable and competitive plan for your circumstances. Normally you should not need to pay any extra for this unbiased service and you may actually save money. Specialist independent financial advisers that focus entirely on Lifetime Mortgages and Home Reversion Plans are often able to negotiate preferential terms. For instance, one quarter or half a percent shaved off an annual fixed lifetime rate could add up to substantial savings over the lifetime of an equity release UK mortgage. An equity release risk calculator can help you to assess not only potential future risks, but also the positive effects of obtaining a specially negotiated interest rate discount from your independent specialist.