You may be considering equity release for your home. It’s a big decision, so it’s best to be informed. Getting the tailored advice of a solicitor is always a good idea to get the most up-to-date information about your specific situation. This guide aims to give some general answers to some of the most frequently asked questions we get about equity release here at Setfords.

Quick links:

• What is equity release?
• Things you must consider about equity release products
• Common causes of delay
• Is equity release the best option for me?
• Who can take out an equity release plan?
• How long will it be until I receive my money?
• How do I receive my money?
• When do I have to pay back the equity release loan?
• Why should I discuss my intention to go down the equity release route?
• Can I make a gift of money to my family/friends/third parties from the drawdown?
• Can I repay the Equity Release loan early?
• Can I borrow more at a later date?
• What happens if my health deteriorates?
• Does an equity release plan stop me from moving house?
• What happens if I go into care? Can my partner still live in the house?
• What happens if the property value reduces?
• How much will it cost?

What is Equity Release?

Equity Release allows you to release funds from your property whilst still living there. There are two main types of Equity Release Plans:

1. LIFETIME MORTGAGE PLANS
   With this plan, you agree to take out a loan based on the value of your home. The loan is secured on your home, but there are usually no monthly repayments to make. Any interest due on the loan rolls up each year unless you choose to make a payment each month/year. If you choose this option, the details of this will be contained in the lender’s Lifetime Mortgage Report.

   The loan is repaid when your home is sold (usually when you move into long-term residential care or after your death). Loans provided by members of the Equity Release Council are typically provided with a fixed rate of interest, so an illustration will be given to you showing the value of the mortgage debt in the future. More recently, equity release plans are available with the option to repay interest or a proportion of the total loan each year. Your financial adviser should explain the options available to you.

2. HOME REVERSION PLANS
   With this plan, you agree to sell a certain percentage of your home to a reversion company for a fixed amount. There is no loan to repay, however when the property is sold, the reversion company receives the same percentage of the sale proceeds as it put in. For example, if the reversion company purchases 50% of your property, it will be entitled to 50% of the sale proceeds. This is the case even when the value of your home has increased. With this plan, you retain the right to live in your home for the rest of your life, usually under a registered legal lease for life.

Things you must consider about equity release products

Equity release is a complex and life-changing decision, so your plan must be suited to your needs.

Your financial adviser should explain your chosen scheme in addition to discussing the interest rates and how the debt grows, the disadvantages and limitations of equity release and how this can change future options.

Product explanation

You will be aware that house prices can go up as well as down. And, the cost associated with setting up your equity release plan will have an impact on the amount of equity you retain in your property at any time.

Equity release schemes let you draw down cash from your property and remain in your home. You can take the amount as a lump sum or take some now, with the option to make additional drawdowns later. However, interest rates can vary substantially, and the debt will grow – it may double in just ten years.

Exit Penalties

Equity release schemes are designed to end when you die or permanently leave your property, for example, when entering permanent residential care. If you choose to repay the loan early, you will usually have to pay an early repayment charge. This is detailed in the Mortgage Offer you receive from the lender.

Alternatives

Equity release can be expensive. Therefore, it is essential to consider other options such as downsizing or borrowing money from family members. Your financial adviser should outline and consider all of these options with you.

Common Causes of Delay

To ensure that this matter proceeds smoothly, we have listed several common causes of delay below. This list is not exhaustive but will highlight situations where we will undoubtedly require the provision of important information as early as possible:

1. Unregistered title deeds
   if you believe that your property is not registered at the Land Registry, we will need to inspect your title deeds. Please discuss this with us if you find yourself in this position.
2. Enduring or Lasting Power of Attorney
   if you have appointed someone to act as your representative under an Enduring or Lasting Power of Attorney, then you must inform us as soon as possible. If the document is registered at the Court of Protection, we will need to receive the original Court stamped copy before proceeding any further. Please note that an Attorney will only be able to act for you where you do not possess sufficient capacity to act for yourself. In this event, we will need your doctor or consultant to confirm your lack of capacity before proceeding.
3. Leasehold Property
   we will usually need to contact your freeholder or managing agent to confirm that ground rent and service charges are up to date. Even if you have not been requested to pay these charges, we may still need to provide the original copy of the lease to the lender’s solicitors. You will be required to obtain a copy of the lease.
4. Property subject to a Trust
   in some circumstances, legal ownership of your property may be subject to a trust. The majority of providers will require details of this Trust. In some circumstances, they may be unable to lend until the Trust has been either revoked or varied by way of a Deed of Variation. Therefore, it is essential that any information relating to a Trust affecting your ownership of the property is provided at the earliest opportunity.
5. Un-discharged Mortgages
   Often, mortgages paid off many years ago remain un-discharged by the old mortgage provider. This may be a result of their offer to store your deeds for you, or may be for another reason. It is essential that any un-discharged mortgages are removed from your title in time for completion of the equity release matter. Please inform us if this is the case. In addition, for any existing mortgages which are being repaid, you will require your most recent mortgage statement. We will contact the provider to request an up-to-date redemption statement from them.
6. Buildings Insurance Schedule
   We will need to provide information regarding your buildings insurance to your equity release provider. Please ensure that you have a copy of your full policy schedule available for your home visit. Please also ensure that the policy is in joint names of all applicants and contains the full details of the insurer, your address, policy number, and the amount the buildings are insured for.

Is Equity Release the best option for me?

Ask your financial adviser what options are available to you. Your financial adviser is qualified and regulated to determine whether equity release is suitable for you and what plan best suits your needs. We are not regulated to do so and therefore we cannot assist or advise you on this.

Who can take out an Equity Release plan?

To take out an Equity Release scheme, you must be:-

• Aged 55-95 (if it is a joint application both people must be in this age range)
• Own a home worth £50,000+
• Live in England and Wales

How long will it be before I receive my money?

Every case is different but for straightforward cases, it usually takes between four and twelve weeks from the date of your application to the day you receive your money. Please note that matters are currently taking longer due to the coronavirus pandemic.

How do I receive my money?

You have a choice about how you receive your money. You can either receive it in one lump sum or in a series of drawdown payments from an agreed cash reserve. Please speak to your financial adviser about which option is best for you.

When do I have to pay back the Equity Release loan?

An Equity Release loan is usually paid back when you die or go into long term residential care. This is why it is usually recommended to discuss it with or inform your family. 

Why should I discuss my intention to go down the Equity Release Route?

The existence of your plan will substantially reduce the value of your estate to be left to your intended beneficiaries. There will be no or little proceeds available in some circumstances after any sums owing to the lender are paid.

Where families are not aware of your decision, there is a greater potential for future disputes. Your family may suggest that the plan’s terms were unfair to you or that you did not understand the risks associated with taking out the plan. The best way of ensuring this does not happen is by informing your family of your wishes and reasons for doing so.

As your solicitors, we are happy to discuss the matter with other parties you authorise us to speak to. However, our ultimate responsibility is to advise you on the nature, effects and implications of your decision to enter into the equity release contract. We need to discuss this matter with you personally in some detail and be satisfied that you understand the risks and rewards of the plan you have chosen and are proceeding without any undue influence or external pressure.

Can I make a gift of money to my family/friends/third parties from the drawdown?

Gifting funds to family and friends is a decision that is entirely yours to make. Where you intend to make a gift of your money to another person or organisation, we would always recommend discussing this with your family, i.e. children and beneficiaries, as gifting funds may be subject to tax either now or in the future. And, where family gifts are made, lack of discussion or misunderstanding may be a cause of future family grievances. Where you have already bequeathed certain gifts to beneficiaries in your Will, we recommend making any necessary amendments to the Will as soon as possible.

Can I repay the Equity Release loan early?

Yes, you can, although some equity release plans will carry a clause stipulating that early repayment of the loan may result in incurring early repayment charges, which can be expensive.

Can I borrow more at a later date?

This will depend on the amount of your existing mortgage, the value of the property, your age, and other factors. If you decide to apply for any further drawdowns, please note that the lender may revalue your home unless you have a guaranteed reserve facility. As a result, any further drawdown may not be available. The additional facility may be decreased or cancelled in the following circumstances:

1. If you are in breach of a term of the mortgage;
2. If the benchmark interest rate rises to a level specified by your lender;
3. If the total amount outstanding (including the original loan plus interest) is more than the value of your home;
4. If the lender is no longer in business in the equity release market, becomes insolvent, or is no longer authorised by the Financial Services Authority to provide Lifetime Mortgages.

For this reason, if you anticipate that you will require additional funds in the future, you should discuss this with your Financial Adviser before agreeing on a plan.

What happens if my health deteriorates?

Many of our clients undertake an equity release plan as a means of extending the time they can live in their own homes. Where physical or mental incapacity begins to impact a person’s ability to manage their own affairs, it can be highly beneficial for a family member or close friend to be appointed to act for you under a registered Lasting Power of Attorney (LPA). An LPA could enable your Attorney to make further withdrawals from your existing plan or even take out a further plan to support your continued occupation of your home. Setfords can advise you further on the benefits of an LPA and produce and register the document for you.

Does an equity release plan stop me from moving house?

No, an equity release plan does not stop you from moving home. However, it can add complications to the move due to certain conditions and criteria your new property must meet to transfer the loan. For example, if your new property is of a lesser value, you may have to repay some of the loan.

What happens if I go into care? Can my partner still live in the house?

A remaining partner can continue to live in the property provided you have taken out a joint plan.

What happens if the property value reduces?

The value of your home can increase or decrease over the years of the mortgage. What you consider to be the value of your home (or what you are informed is the value) may not be the same at the date of redemption of the mortgage. But, provided the equity release plan you take out is offered by a member of The Equity Release Council (ERC), it will have a no negative equity guarantee. This means that even if the value of your property falls below the amount owed, you will never owe more than the value of your property.

How much will it cost?

An equity release plan offers you the opportunity to continue owning your property and to remain in occupation until you are no longer able to, for example, upon moving into a permanent care facility or death. By deciding to withdraw equity from your home now, you commit to a long-term contract for financial services. Over time, this will result in the amount of equity you own in your home being reduced. Please ensure you have reviewed and fully understood the relevant section of your lender’s equity release offer. This will provide an illustration of the projected cost of borrowing over the term.