Equity release – how it works and how we can help

Equity release is growing in popularity as a way for those aged 55+ to release a tax-free sum from the equity they have built up in their home.

However, it is not suitable for everyone, and this is where you need a solicitor to ensure you have received completely independent advice about the risks, rewards and obligations that are attached to any equity release plan that has been deemed suitable for you.

Appointing a solicitor is a key requirement of the Equity Release Council Code of Conduct. KWW is pleased to be recommended by a number of reputable local independent financial advisers (IFAs) for the task of ensuring your best interests are being served.

Here, our equity release specialist Eve Wilson offers an overview of the equity release market. We can’t stress enough that this is first and foremost a financial decision and one that requires professional guidance from someone with the right authority, typically an independent financial adviser (IFA).

Modern equity release comes in two forms: Lifetime Mortgages and Home Reversion Plans.

Lifetime Mortgages are the most popular type of equity release as it allows you to take a loan secured against your home while still owning it. Home Reversion Plans are where you sell all or part of your property for less than the market value. You stay in your home but as a tenant.

Why equity release?

There are many reasons people might want to release equity from their home. The most common ones we encounter are for:

• topping up retirement income
• giving beneficiaries a deposit to buy a property 
• providing a higher standard of living in later years
• making home improvements
• planning for Inheritance Tax issue liabilities down the line
• helping to pay for care home fees

Pros and cons of equity release

Once your IFA has a clear picture of your overall financial position, they will walk you all the things you should bear in mind when considering equity release.

The key benefits of equity release, as we see them, are:

• The money released is free of tax and there are no restrictions on what it can be spent on
• It can allow you to enjoy a higher standard of life as you approach or enter retirement
• You can reduce the size of your estate to mitigate against inheritance tax
• You can stay in the familiar setting of your home for life or until you move to long-term care
• You can make repayments to reduce your outstanding loan
• Many providers offer a guarantee that there will be negative equity so your beneficiaries won’t be caught out.

On the downside, these are the main things to take into account:

• You will leave a reduced inheritance to your beneficiaries
• If you choose a Roll-up Lifetime Mortgage, the interest is added to the amount you owe each month. This means the amount you owe will quickly increase over time
• If you pay off more than 10% of the loan in any given year you will most likely be subject to an early repayment charge
• Releasing equity may impact your entitlement to state benefits
• Equity release can be difficult to port to another property
• It is difficult to add people to the title deeds later should the need arise.

How long does equity release take?

The equity release process usually takes between 12 and 14 weeks. There are four main stages:

1. Your IFA will check your eligibility and assess whether equity release is the right thing for you.
2. Once you are happy to proceed you will need to appoint a solicitor – hopefully us – and get independent legal advice in a face-to-face meeting where identity checks can also be undertaken
3. The IFA will submit the application and the equity release provider will contact you to arrange a valuation of the property
4. Once approved, your solicitor will be granted an offer. Assuming everything is in order, the solicitor will comply with the lender’s instructions to ensure your new equity release lender is able to secure a legal charge against your property and completion funds will be released to you.

The exact timescale for these three stages will depend upon your lender and solicitor.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.