The specialists who understand the implications and significance of homeowners taking out a ‘later life’ mortgage when many of us consider being ‘mortgage free’ a huge achievement and relief.
With an ageing population and a reducing workforce, the ratio of non-working-age to working-age population is rising rapidly based on The Office of National Statistics projections. It’s becoming very clear that the State will not be able to support older generations in their retirement in the manner to which they have become accustomed. It is likely that pensions and other incomes will not be sufficient to fund the average lifestyle.
Most people’s wealth is tied up in the property they live in, having paid off most or all of their original mortgage and having regard to the ever increasing values in the property market.
Because of this, various solutions are available to enable homeowners to release their wealth in later years. One of these is an Equity Release loan. This type of loan and its lenders have undergone much tighter regulation over the last few years which now provides significantly greater protection for borrowers. More recently, The Financial Services Authority has regulated the industry. More thorough and transparent processes have been set up to ensure the consumer has all financial options put to them so that Equity Release is not the only way forward when it comes to planning retirement. Advice on these matters must be given by a qualified and reputable financial advisor.
Once financial advice has been obtained and a decision has been made that an Equity Release loan is the way forward, this is where we at Waldrons have the expertise to advise on the legal implications and conditions, and to deal with registration of the loan at the Land Registry.
Waldrons answer some of the questions that are frequently asked;
What is Equity Release?
Equity Release is a way of releasing cash tied up in your property without having to sell and move to another home. There are different types of Equity Release which enable you either to borrow against the value of your home, or, sell all or part of it in exchange for a cash sum or a regular monthly income. Some Equity Release plans give you the option to receive further cash payments at intervals based on your requirements. You do not usually have to repay monies borrowed by way of Equity Release until either you die or you leave your home to go into full time residential care. If you are a joint owner with, for example, your husband or wife, the property does not have to be sold until the death of the last of you, or the last of you goes into residential care.
What are the Equity Release options?
Lifetime Mortgages
A Lifetime Mortgage will allow you to borrow an agreed amount from the lender against the value of your property. This can be paid in either a lump sum or can be drawn down whenever you require. You do not usually need to repay the loan amount during your lifetime however interest is calculated monthly and added to the balance due. The lender will register a First Legal Charge against your property, securing their loan.
Home reversion products
A Home Reversion Product allows you to access funds from your property by selling all or part of it to a lender. You retain the right to remain in your property, rent free, for the rest of your life. Upon the sale of either the whole or part of your property you will receive a tax-free cash lump sum or if preferred regular payments, and a lifetime lease securing your interest to remain in the property for the remainder of your life. There are no restrictions on how you manage your property and no day to day interference from the lender.
How much can I borrow?
At present, the usual Equity Release arrangement allows you to borrow up to 60% of the value of your property. The property usually has to be worth more than £70,000.00, and any Equity Release amount must include any existing mortgage you have on your property.
Who is equity release designed to help?
Anyone over the age of 55 who either owns their property which has no mortgage or has a mortgage with a relatively small amount to repay.
What can the cash obtained by way of equity release be used for?
Pretty much anything you want, but some examples would be:
● to carry out repairs and improvements to your home;
● to provide a deposit to a child or children to assist with buying a property for them;
● to meet a private medical bill;
● to meet education fees for your children/grandchildren;
● to reduce the value of your Estate for Inheritance Tax purposes subject to appropriate Inheritance Tax rules. (Waldrons offer advice on Estate and Tax Planning from our Expert Private Client Lawyers).
Is equity release the right option for me?
It is very important to remember that Equity Release is not right for everyone. Other methods of raising cash may be available to you and these should be explored. It is imperative that you obtain proper financial advice from an independent financial advisor before you enter into any Equity Release arrangement so that you are fully aware and accept the nature and effect of the financial arrangements you are putting in place. Make sure you are happy with the arrangement and understand fully the effect it will have upon you.
What are the downsides?
● if you choose not to pay interest payments on the loan, you or your Estate will have to repay significantly more than you have borrowed when your property comes to be sold;
● if you are in receipt of means tested State Benefits, borrowing a cash lump sum could affect your eligibility to continue receiving such benefits;
● the Equity Release loan will reduce the value of your Estate that you have to leave to your Beneficiaries when you die. You should discuss this with them so that everyone is aware of what you are doing.
Can I end up owing more than my home is worth?
This is possible, but most Equity Release loans now have a Negative Equity Guarantee, which means that if you do not breach the terms of the loan, when your property comes to be sold, the mortgage repayment will be less than the money received from the sale. It is important you discuss this with your independent financial advisor.
What else should I consider at the time of equity release?
It is usually a requirement that the loan is repaid within 12 months of the last borrower going into long term care or their death. There is therefore a time pressure if someone has died or who has gone into residential care and is unable to manage their own affairs, as the Lender will be able to demand repayment of the loan immediately or take possession of a property in order to sell it themselves. Such a course of action obviously leads to interest continuing and further costs being incurred that will have to be taken from the proceeds of sale.
In an attempt to avoid such situations occurring, if you are entering into an equity Release loan, please consider the following:
● Have you made a Lasting Power of Attorney (“LPA”)? This is a legal document which allows you to appoint an Attorney to act on your behalf if, and only if, you lose the mental capacity to handle your property and financial affairs yourself. If such a situation should arise, your Attorney would be able to market your property immediately should you need to go into residential care, and thereby hopefully achieve a speedy sale which would prevent the accumulation of interest payments. Without an LPA, if you unfortunately lose mental capacity, someone would have to apply to the Court to be your Deputy before anything could be done to market your property. This procedure is lengthy and can be costly, and therefore the risk of interest payments accumulating is greater.
● If you have made a Will you should have appointed Executors to deal with your Estate when you die. Your Estate includes your property. Your Executors can start to deal with marketing your property upon your death, thereby hopefully achieving a quicker sale and reduce interest accumulating on your Equity Release loan. If you have not made a Will, your property can only be dealt with by your Administrators once the Court has granted Letters of Administration. This process can take a number of months, and during this time nothing can be done to market your property thereby causing interest payments to accumulate.
What should I do next?
Consult a reputable independent financial advisor for advice on what Equity Release products are presently on the market, and which may be suitable for you, given your situation, your life style, and your wish to make provision for others. Once you understand the nature and effect of an Equity Release loan and wish to proceed, contact our Equity Release Team, so that we can give you proper and full detailed legal advice on the implications of any Equity Release loan.
Instruct a Solicitor. At Waldrons, John Roberts, Nicole Cleaver and Louise Head have the knowledge and experience to help and guide you through the legal process of releasing equity in your property to enable you to travel, carry out home improvements, support your family or simply to be financially comfortable in your retirement. Waldrons provide a fixed fee cost in respect of all Equity Release matters and if the loan does not complete for any reason, make no charge for legal costs that have been incurred. Waldrons are members of the Equity Release Council, an independent body set up to promote high standards of conduct and practice in this sector and as this later life financial planning market increases, it is there to protect the consumer, details of which can be found on www.equityreleasecouncil.com
John Roberts, Solicitor & Managing Director comments
“We are a dedicated team with the right experience to deal with Equity Release matters swiftly and efficiently. Clients are given complete transparency on processes and fees; are allocated a specific solicitor to deal with throughout the matter and can choose their method of communications between us, which is particularly important in Covid times”.
