Equity release on the march

The Money Advice Service defines equity release products as follows:

'Equity release refers to a range of products letting you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum or, in several smaller amounts or as a combination of both.

There are two equity release options:

  • Lifetime mortgage: you take out a mortgage secured on your property provided it is your main residence, while retaining ownership. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
  • Home reversion: you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it.'

A recent report reveals that the number of people taking out these products to release the value in their homes continues to increase.  The research reveals that the majority of people take out equity release products to enable them to live in their home for longer.

However, interestingly, a significant proportion of these people release the value in their home to help their children pay for a deposit on their own home.

The majority of people take out a lifetime mortgage product.

It is important to remember, however, that this course of action does create a first legal mortgage over the property in question. In most cases, the borrowers do not make any monthly repayments to pay off the capital sum that has been borrowed.  This means that the debt increases quickly. The regulation of this market has improved in recent years.  However, upon the death of a surviving parent, it can still come as a nasty shock to their children to find that there is a substantial mortgage to pay off.

It is important to obtain financial advice if considering an equity release product.  It is equally important to take proper, specialist legal advice. Your lawyer can explain the implications of the product to you and can help you to understand the commitment that you are taking on.

It is not the lawyer's job to give financial advice, but your lawyer could help you to think about other options such as whether selling your house and moving to a smaller property mighty be a suitable option.

To discuss this or any other property related matter, contact us.