Am I eligible for an Equity Release scheme?
The usual prerequisites to take out an equity release contract are -
- Aged at least 55, and
- Own your property and/or have a small mortgage on it
What are the charges involved with Equity Release?
Unfortunately there are a myriad of fees but with strong competition in this sector some of them will be negotiable. Don’t forget this point and always ask a potential equity Release provider if a deal can be done on the charges. Perhaps play one company off against the other.
The following are guidelines only;
- Arrangement fee - £200-£600
- Legal costs - £200-£600
- Valuation fee - £200-£400 or sometimes charged as a percentage of the property's value
- Insurance - This is required by the lender, usually around £200-£400 per annum but can depend on the value of the property
- Rental charge - With a home reversion scheme you may be required to pay a token rent, perhaps £1-£10 a month
- Another potential charge you should look at is early repayment if you choose to pay off a lifetime mortgage.
Something to watch out for with all these charges is how they’re exactly paid. Say the total charges are £1,000, when will this money have to be paid? When the deal is signed or will they be added to the total loan?
If added to the total loan it might mean the £1,000 is paid over several years but with interest added. Where possible it’s always better to pay the fees upfront and not have them added to a loan.
What happens if the property falls into negative-equity?
This used to be a problem in the past but now all Equity Release schemes that are offered by members of SHIP have a no negative-equity guarantee.
A SHIP plan means that you can never owe more than the value of your home, whatever happens to the stockmarket, economy or housing market. Ultimately with a SHIP plan your home can never be taken away from you.
More details on Safe Homes plan (SHIP)
Will my spouse still be able to live in the property if die?
If the scheme was taken out in both of your names then your partner can stay in the home until he/she dies.
Is there a risk of losing my home?
Not if your plan is a SHIP one (see question above). However if not a SHIP backed scheme then the answer in certain situations is yes.
This is why it's so important to get proper authorised advice when thinking about taking out an equity release plan.
Perhaps you cannot pay the interest on a lifetime mortgage or the rent on a
Any other alternatives to a home equity release scheme?
- Consider trading down, selling you home for say £250,000 and buying a smaller one for £180,000. The balance of around £70,000 can be invested to provide an income
- Some banks and building societies offer loans and even interest only mortgages based on pensions, but the repayments will increase your outgoings per month
- Alternatively, members of your family may be prepared to lend you money by against the value of your property
