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Main Page » Services » Equity Release

Equity Release

Equity release as financial term can be understood as a means of retaining use of your house or other object which has capital value, while also obtaining a steady stream of income, using the value of the house.

The "Key Mantra" is that you have to re-pay the income-provider at a later stage, usually when you die. Thus equity release is particularly useful for senior citizens who do not wish to leave a large estate for their heirs when they die.

Categories of Equity Release

Home reversion: The borrowers sell all or part of their home to a third party, normally a reversion company or individual. This means all or part of their home belongs to somebody else. In return, the borrowers receive a regular income or cash lump sum (or both) and they continue to live in their home for as long as they wish.

Shared appreciation mortgage: The lender loans the borrower a capital sum in return for a share of the future increase in the growth of the property. The borrowers retain the right to live in the property until death. The older the client the smaller the share required by the lender.

Home Income Plan: A lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender, which is often an insurance company.

Lifetime mortgage: A loan secured on the borrower's home (a mortgage) is made to generate the capital. Interest payments are added to the capital throughout the term of the loan, which is then repaid by selling the property when the borrower(s) die or move out (perhaps into a care home). The borrower retains legal title to the home whilst living in it, and also retains the responsibilities and costs of ownership.

Interest only: A mortgage is made, on which the capital is repaid on death. Interest payments are paid out of the borrowers' income whilst they remain in the property.

Advantages of Equity Release

Equity Release can provide a steady income (annuity), which can be index-linked, for the rest of your life.

Disadvantages of Equity Release

Equity Release will decrease the amount of money your family will inherit upon your death

A Word About UK Equity Release Market

The UK equity release market was partially regulated in 2005. All mortgages, including lifetime and interest only arrangements now fall under the remit of the Financial Services Authority (FSA). Prior to FSA regulation, many lenders signed up to SHIP, a voluntary code of conduct that provides amongst other things a no negative equity guarantee.

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