Moving to a smaller home
Selling up and buying somewhere smaller or cheaper can free up money without any borrowing. Remember to budget for the cost of moving.
The basic idea
Equity release is for homeowners aged 55 and over who want to release part of their property's value and stay where they are. "Equity" is the share of your home that belongs to you: its value, less any mortgage still outstanding.
The money can come as one lump sum, in smaller amounts when you need them or, in some cases, as a regular income. Most people use a lifetime mortgage, which is a loan secured against your home. The other route is a retirement interest-only (RIO) mortgage, where you pay the interest every month. Lifetime mortgages and RIO mortgages are the only types of equity release I advise on, so this guide sticks to them.
For some people it works very well. It is also a long-term commitment with real costs, which is why it pays to take your time.
Retirement interest-only (RIO) mortgages
You pay the interest each month on a RIO mortgage, so the debt doesn't grow. The loan is repaid when the last borrower dies or moves into long-term care. Your income has to cover the monthly payments now and in the years ahead, so it won't suit everyone.
Who it's for
Who qualifies?
- You're 55 or older. If you're applying as a couple, each person on the plan will normally need to meet the minimum age.
- You own your home in the UK. A leasehold property may be accepted, depending on the lease.
- Your property is worth enough to meet the lender's minimum.
- A mortgage you still have can normally be cleared from the money released.
How much might you get?
Mostly it comes down to your age and what your home is worth. As a rule, the older you are, the more a lender may be willing to offer. Some lenders offer more where certain health or lifestyle factors apply.
The calculator can give you a ballpark figure in about a minute. It's only an estimate, and the actual offer depends on the lender and on your circumstances.
Step by step
From the first call to the money in your account
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The first conversation
We have a free chat, with no obligation, about your home, your finances, what the money is for and how your family feel about it. Feel free to bring someone with you.
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Weighing up your choices
We look at whether equity release suits your situation, next to the alternatives. I set out the costs and risks of each so you can compare them on a fair basis.
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My recommendation and your illustration
Where equity release makes sense, I give you a personal recommendation in writing, plus an illustration based on your own figures that shows the costs and how the loan could build up. You then have time to read it and think.
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Independent legal advice
A solicitor will be appointed independent of the lender to guide you through the documentation.
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Application, valuation and offer
The lender has your home valued, goes through the details and, if all is well, sends a formal offer. That generally takes a few weeks, depending on the lender and the solicitors involved.
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Completion
When everything has been signed, the money is released. If you have an existing mortgage, that is paid off first and the rest comes to you.
Involve your family. What you decide affects what is left for them, so it often helps to bring them in early. Many people like having a relative in the room, or on the call, for that first conversation.
What about the years that follow?
With a lifetime mortgage you carry on living in your home. The loan and the interest that has built up are normally repaid when the last borrower dies or moves into long-term care, usually by selling the property. Whatever is left after that passes to your estate.
While the plan is running you will be expected to keep the property in good repair and properly insured.
What are the costs?
Costs differ from plan to plan, so ask to see the whole picture in writing. They can include:
- Interest, which is usually fixed or capped for life and often added to the loan.
- Arrangement and legal fees can be added to the loan.
- Early repayment charges if you repay or move before the plan ends.
- Any fees charged by Avalon ER will be confirmed in writing before you go ahead.
Be aware
The downsides
Equity release isn't right for everyone. The main things to weigh up are:
- The debt grows. If interest isn't paid, it's added to the loan and then earns interest itself, so the amount owed can grow quickly over many years.
- There's less left for your family. It reduces the value of your estate.
- It may affect benefits. Extra money may change your entitlement to means-tested benefits, although that's not always the case.
Your protections
Equity Release Council standards
Avalon FS is a member of the Equity Release Council, whose standards are designed to protect you. Its members commit to standards including:
- The right to stay in your home for life, provided you keep to the terms of the plan
- A no negative equity guarantee: you'll never owe more than your home is worth
- The right to move to another suitable property, subject to the lender's criteria
- Fixed or capped interest rates for life
- Independent legal advice before you commit
Other routes
Other options to look at first
Sometimes the best answer is not to release equity at all. These are all worth a thought, and I'll go through them with you whatever you decide.
Other types of borrowing
An ordinary mortgage or loan could cost less if you can comfortably manage the monthly payments, although lenders may place age limits on borrowing.
Support from relatives
Some families can help out. If yours can, agree the terms clearly and put them in writing.
Benefits and support
Make sure you're claiming everything you're due, such as Pension Credit or Attendance Allowance. Age UK and the government's benefits calculator can help you check.
Savings and pensions
You might be able to use savings or pension money instead. Pension Wise offers free, government-backed guidance to many people over 50.
Would you like to talk it over?
You're under no obligation and I won't pressure you. Try the calculator, or get in touch for a relaxed chat.