10 October 2019

Is your home a pot of gold?

For most of us, our home is our biggest asset and as property prices have increased over the last 20 years, many people look to release much needed equity from their homes in order to help and support their own families. When it comes to paying for education, this can be an obvious ‘pot to raid’ but there has been a lot of bad press over the years about equity release schemes and it’s important to know the options available to you before going ahead.

Most of us are familiar with traditional mortgages but as we get older, meeting the affordability criteria laid down by banks and building societies becomes more difficult. Many people wish to release equity from their homes but are not able to make the repayments during their lifetime so it’s important to understand the way equity release schemes work before you commit.

The first thing you need to ensure is that any arrangement you enter into is regulated by the Equity Release Council. There are a number of schemes available including those which are only repayable on your death. Some are repayable on the sale of your property, where providers may allow you to port the mortgage to a new property if you move or go into long term residential care. Some schemes allow you to make interest payments only, or interest and capital payments, and there are still others which buy your property from you and provide you with a lease back to live in the property for as long as you are able to.

Most equity release schemes provide you with a lump sum payment although recently some schemes have allowed monthly drawdowns thus creating a pension/annuity type arrangement. It’s important to look for a ‘no negative equity release’ guarantee with any scheme that you enter into. This means that the amount that you owe can never be more than the value of your property so you don’t leave a headache for your family on your death. In the past this has not always been the case and has contributed to a significant mis-selling scandal in the late 80’s/early 90’s before the schemes were properly regulated.

In all cases, the equity release mortgage will be secured against your property in the same way as a traditional mortgage and you will need a solicitor to deal with the legal paperwork in relation to this.

Your equity release provider will appoint their own solicitors to investigate the title to your property and deal with the security required. Your solicitor will guide you through the process and advise you on a number of consequences of the equity release mortgage, such as potentially affecting any means tested benefits that you may be entitled to and also making sure that you understand exactly the type of scheme that you are entering into. Your solicitor will also help you to explain the terms of the equity release to your family so that they are aware of the consequences of the arrangement and there are no nasty surprises when you die.

Once all the paperwork has been completed, then the monies are released to you as a traditional mortgage and you can help your family with the moments that matter to them.

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About the Author
Zoe Touhey, Partner, Head of Residential Property in the Three Counties
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