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What is equity release?
Equity release allows you to access tax-free money tied up in the value of your home.
The amount you can release will depend on a number of factors, such as your age and the value of your property.
The most common way to release equity is by taking out a lifetime mortgage, but there are other options.
How does it work?
You can take the money you release as a lump sum, as smaller payments over time, or as a combination of both.
To be eligible for equity release, you must:
- Be aged 55 or over (the youngest applicant for couples)
- Own your own home, based in the UK and of standard construction
- Own a property worth at least £70,000
Things to consider
Types of equity release
There are two main types of equity release – lifetime mortgages and home reversion plans.
With a lifetime mortgage, you take out a loan against your home that allows you to release money. You keep ownership of your home and the loan is repaid when the property is sold after your death, or when you move into long-term care (if you have a joint plan, this will apply to the last borrower).
With a home reversion plan, you sell some or all of your property to a home reversion provider. Your provider will offer to purchase a percentage of your home for less than market value, and you will keep the right to live there for the rest of your life. In return, you’ll get a lump sum or regular payments.
The benefits of equity release
The main benefit of equity release is being able to access tax-free cash that can be used now, rather than it being locked into your home. You can continue living in your home until you die or move into permanent residential care.
What’s more, most equity release plans (such as a lifetime mortgage) will allow you to move your plan to a new home – provided your lender approves the new property.
The risks of equity release
While equity release can be the right option for some people, there are a number of risks to be aware of. An equity release plan will allow you to free up cash, but it will also reduce the value of your estate, meaning you’ll have less to pass on when you die.
Other considerations include:
- Any means-tested benefits you’re entitled to could be affected. This includes reduced council tax.
- Your circumstances may change. For example, if you have a joint plan and the other person dies, you may want to move into a smaller property. This may not be possible with equity release, as the remaining equity in a smaller, lower value property may not meet the terms of the loan.
- The condition and value of your home are taken into account in deciding whether you are eligible for equity release.
The costs of equity release
Speaking to a Specialist Financial Adviser from Wesleyan Financial Services carries no obligation.
If equity release might be an option for you, we'll refer you to our expert broker partner, HUB Financial Solutions. There is no obligation to proceed, but if you take out a plan, there will be a fee of £1,100 to cover the advice and arrangement of the plan. This will be paid to HUB Financial Solutions.
Aside from the advice and arrangement fee, there may be other costs to consider. For example, you may also have to allow for valuation and solicitors fees.
There are two main types of equity release – lifetime mortgages and home reversion plans.
With a lifetime mortgage, you take out a loan against your home that allows you to release money. You keep ownership of your home and the loan is repaid when the property is sold after your death, or when you move into long-term care (if you have a joint plan, this will apply to the last borrower).
With a home reversion plan, you sell some or all of your property to a home reversion provider. Your provider will offer to purchase a percentage of your home for less than market value, and you will keep the right to live there for the rest of your life. In return, you’ll get a lump sum or regular payments.
The main benefit of equity release is being able to access tax-free cash that can be used now, rather than it being locked into your home. You can continue living in your home until you die or move into permanent residential care.
What’s more, most equity release plans (such as a lifetime mortgage) will allow you to move your plan to a new home – provided your lender approves the new property.
While equity release can be the right option for some people, there are a number of risks to be aware of. An equity release plan will allow you to free up cash, but it will also reduce the value of your estate, meaning you’ll have less to pass on when you die.
Other considerations include:
- Any means-tested benefits you’re entitled to could be affected. This includes reduced council tax.
- Your circumstances may change. For example, if you have a joint plan and the other person dies, you may want to move into a smaller property. This may not be possible with equity release, as the remaining equity in a smaller, lower value property may not meet the terms of the loan.
- The condition and value of your home are taken into account in deciding whether you are eligible for equity release.
Speaking to a Specialist Financial Adviser from Wesleyan Financial Services carries no obligation.
If equity release might be an option for you, we'll refer you to our expert broker partner, HUB Financial Solutions. There is no obligation to proceed, but if you take out a plan, there will be a fee of £1,100 to cover the advice and arrangement of the plan. This will be paid to HUB Financial Solutions.
Aside from the advice and arrangement fee, there may be other costs to consider. For example, you may also have to allow for valuation and solicitors fees.
Next steps
Speak to a Specialist Financial Adviser
Speak to a Specialist Financial Adviser from Wesleyan Financial Services who will review your circumstances and consider whether equity release could be for you.
Get advice from HUB Financial Solutions
If your Wesleyan Specialist Financial Adviser considers equity release as a possible option for you, you’ll be referred to our broker partner, HUB Financial Solutions.
Receive your official equity release offer
Once you’ve made a decision on the plan, you will receive an official equity release offer. If you accept, your plan will begin and you'll receive payment.
Equity release explained
Still unsure whether equity release is the right choice for you? For everything you need to know all in one place, read our comprehensive guide.
- How much equity you can release
- The pros and cons of equity release
- Equity release and inheritance tax
Important information
Wesleyan Financial Services Ltd. do not provide advice on lifetime mortgages (a type of equity release). However, you can speak to our Specialist Financial Adviser who can review your personal circumstances and explore alternative ways to equity release to free up your finances.
At your request, we can refer you to HUB Financial Solutions who provide independent advice on lifetime mortgages. HUB Financial Solutions are part of Just Group and are authorised and regulated by the Financial Conduct Authority (FCA).
Wesleyan Financial Services Ltd. will receive a fee from HUB Financial Solutions for an introduction to them for a lifetime mortgage when the mortgage completes.
Frequently asked questions
Speaking to a Specialist Financial Adviser from Wesleyan Financial Services carries no obligation.
If your Specialist Financial Adviser from Wesleyan Financial Services considers equity release as a possible option, they'll refer you to HUB Financial Solutions. There is no obligation to proceed, but if you do take out a plan, there will be a fee of £1,100 to cover the advice and arrangement of your chosen plan. This will be paid to HUB Financial Solutions.
If you’re eligible for equity release, there are a number of factors that will determine how much money you can take from your home.
For example, the value of your property. As part of the application process, your provider will carry out a professional valuation that will help to inform how much equity you’re able to release.
Another example is how long you’re likely to live in your home after taking out your plan. This calculation is based on your age and your health. If you make a joint application, the estimate will be based on the details of the youngest applicant.
Your lender will also look at the type of property you live in, as well as it’s condition and location.
Most equity release plans (such as a lifetime mortgage) will allow you to move your product to a new home – provided your lender approves the new property.
If you want to move into a home that is significantly cheaper than your existing property, your provider may be unwilling to lend as much against it. If this is the case, you may have to repay some of the mortgage early, potentially triggering early repayment charges.
Generally speaking, it takes around six to eight weeks (from when your application is accepted) to release equity from your home, but this does vary. Equity release is a big decision, and there are usually several stages involved.
These stages are likely to include receiving advice, submitting your application, carrying out a property valuation, seeking legal advice, getting your offer and, finally, the release of funds.
If you take out a lifetime mortgage, you may be able to pay back some or all of it early.
Sometimes this can help to reduce the cost of the overall loan, but you may face early repayment charges which could make it more costly.
There are certain circumstances where you may be able to avoid paying an early repayment charge. For example, if you’re moving house, your lender may let you transfer your lifetime mortgage to your new property without charge.
This is why it’s important to understand the terms of your arrangement before taking out an equity release plan.
As inheritance tax is based on the size of your estate, and equity release reduces the value of your estate, the amount of any inheritance tax payable on your death may be lower.
While this may sound appealing, it’s important to remember that equity release will also reduce the amount of capital that is passed onto your beneficiaries when you die.
This is because you’ll receive lump sum or regular payments from your equity release provider on the understanding that they are repaid when you pass away or move into long-term care. This usually involves selling your home to settle the bill – meaning your family won’t inherit it.
If you use equity release to gift money to friends or family, this may also be subject to inheritance tax. You can find more information on gifting on the UK government website.
Please note that the Financial Conduct Authority does not regulate inheritance tax planning.
While equity release can provide an effective way to support your plans for retirement, it isn’t for everyone. There are a number of alternatives to consider before making a decision, with the most common being downsizing.
Other alternatives include remortgaging and exploring local authority grants available to those who are looking to update their home so they’re able to continue living there independently.
To explore other ways to free up your finances, speak to a Specialist Financial Adviser from Wesleyan Financial Services today.