What is equity release?

In simple terms equity release is unlocking the money in your home.

If you're a homeowner over 55, equity release might be the perfect way to get extra cash in retirement. It lets you access the money tied up in your house without having to sell it.

Imagine your home's value is a pie. Equity release lets you take a slice of that pie and turn it into cash. You can use this money for anything you like – extra income, home improvements, paying off debts, or even helping your family.

How Does It Work?

• Lifetime Mortgages: This is like taking a loan against your home. You don't have to make monthly payments – the loan and interest are paid back when you pass away or move into long-term care.

• Home Reversion Plans: You sell part (or all) of your house for cash but get to stay there rent-free for the rest of your life.

Important Things to Know:

• You won't need to make monthly payments (usually).

• You're protected: You'll never owe more than your house is worth, even if the debt grows.

• Consider carefully: It's an important decision, so get professional advice to see if it's right for you.

Ready to learn more? Explore our website for details, and don't hesitate to ask us any questions!

Should I release equity?

Releasing equity from your home could be a great way to raise funds, but with the help of an equity release advisor you can establish if its the best solution for you. There are many other ways of releasing property wealth such as downsizing, traditional mortgages etc. If you are considering equity release, the best place to start is to speak with a "whole of market" equity release advisor. A whole of market equity release advisor will be able to compare all the plans available in the market and make a recommendation so you know you are getting the best deal available at any given time.

What are the ways you can release equity?

1.Lifetime Mortgages

This is the most popular form of equity release. When you hear the term equity release, most of the time people refer to Lifetime Mortgages. Due to the flexibility of Lifetime Mortgages , they have become the most popular form of equity release. Some sources suggest almost 99% of the equity release plans sold in the UK are Lifetime Mortgages while the other form of equity release, Home Reversions account for approximately 1%. We will explore both options in detail below so you can better understand the products.

There are about 10 lenders such as Aviva, Canada Life, Standard Life , Legal & General who offer lifetime mortgages. This is the most popular form of equity release. Why are Lifetime Mortgages popular? Here are some of the main reasons why.

• Interest rates are fixed for life.

• Flexible repayments with no penalties are possible. Usually up to 10% of the amount borrowed per year

• Portable- meaning you may be able to move home and take the plan with you to the new property subject to the lender's approval.

• You can live in your property until you pass away or go into long term care.(or until you permanently move out of your property)

• Drawdown plans available. Meaning you don't have to take all the funds you need in one go. You can borrow an initial lumpsum, minimum of £10,000 (usually the minimum with most lenders) and leave the rest in a drawdown facility which you can withdraw as and when you need the money. You are only charged interest on the first £10,000 until you withdraw from the drawdown facility, at which point you will be charged interest on the amount you withdraw at the prevailing rate. This is usually a cost effective way of borrowing.

2.Interest Payment Required Lifetime Mortgages

As the equity release market evolves, new products and innovations are increasingly tailored to be more customer-friendly. Interest payment required lifetime mortgages differ from traditional lifetime mortgages by requiring the customer to commit to monthly payments. In return, they benefit from either a lower interest rate or a higher loan-to-value ratio, particularly if they agree to higher monthly payments over an extended period. This type of plan typically necessitates affordability checks to qualify. Additionally, there is a risk of repossession if payments are missed during the agreed term, similar to a traditional mortgage, hence the need for an affordability assessment. Some lenders offer this product to clients starting at the age of 50. Although currently limited, the number of lenders providing such options is expected to grow in the future

3.Home Reversion Plans

What are Home Reversion Plans?

A home reversion plan is a way for homeowners, typically retirees, to sell a share of their property to a home reversion provider in exchange for a lump sum or regular payments. Essentially, you're selling a portion of your property while retaining the right to live in it for the rest of your life or until you move out.

How Do Home Reversion Plans Work?

• You sell a portion of your property to a home reversion provider. The percentage sold can vary, but it's usually between 20% and 60%.

• You continue to live in your home rent-free or at a nominal rent.

• When the property is sold, either after your passing or when you move out permanently, the proceeds are divided based on the percentage ownership.

Pros of Home Reversion Plans:

• Access to Cash: You can unlock a lump sum or regular income without having to move out of your home.

• No Interest: Unlike a loan, there's no interest to pay on the money you receive.

• No Monthly Repayments: Since it's not a loan, you don't need to make monthly repayments.

• Potential for Growth: If the value of your property increases, you'll still benefit from the portion you retained ownership of.

Cons of Home Reversion Plans:

• Loss of Ownership: You're selling a share of your property, so you won't receive the full value when it's sold.

• Impact on Inheritance: Your beneficiaries will receive less inheritance since you're selling a portion of your property.

• Limited Providers: Home reversion plans are not as common as other equity release options, so there may be limited providers available.

• Property Value Fluctuations: If the value of your property decreases, you'll receive less when it's sold.

Is a Home Reversion Plan Right for You?

Whether a home reversion plan is suitable for you depends on your individual circumstances and financial needs. It's essential to consider factors such as your age, health, the value of your property, and your long-term plans before deciding.

In conclusion, home reversion plans can be a viable option for retirees looking to access funds tied up in their property. However, it's crucial to weigh the pros and cons carefully and seek independent financial advice before making any decisions.

Lifetime Mortgage Interest Rates and the UK 15 year gilt yield

Source: CNBC

Understanding Gilt Yields

Gilts are UK government bonds issued by HM Treasury. They are considered low-risk investments, and their yields are a benchmark for many other interest rates in the economy. The 15-year gilt yield specifically refers to the return on a gilt with a maturity of 15 years. This yield reflects investor expectations about future inflation, economic growth, and interest rates.

The Connection Between Lifetime Mortgage Interest Rates and Gilt Yields

Lifetime mortgage providers often use long-term gilt yields, particularly the 15-year gilt yield, as a reference point for setting their interest rates. The rationale behind this is twofold:

1. Cost of Capital: Lifetime mortgage providers need to fund the loans they offer, and they do so by raising capital from various sources, including institutional investors. The yield on gilts represents the risk-free rate of return that these investors could earn by investing in government bonds. Therefore, lifetime mortgage providers set their rates above gilt yields to attract investors and cover the risk premium associated with lending to homeowners.

2. Market Sentiment and Economic Indicators: The 15-year gilt yield encapsulates market expectations about future interest rates, inflation, and economic conditions. When gilt yields rise, it often signals higher expected future interest rates and inflation, prompting lifetime mortgage providers to increase their rates to maintain their profit margins and manage risk.

Impact on Borrowers

For potential lifetime mortgage borrowers, understanding the connection between gilt yields and interest rates is vital. Here's how changes in gilt yields can affect them:

• Rising Gilt Yields: When gilt yields increase, lifetime mortgage interest rates tend to follow suit. This results in higher borrowing costs for homeowners, meaning that the amount of interest accumulating on their loan grows faster. For borrowers, this could mean receiving less money than expected from their home's equity or facing higher overall repayment amounts.

• Falling Gilt Yields: Conversely, when gilt yields decline, lifetime mortgage interest rates generally decrease. This can make lifetime mortgage products more attractive, as lower interest rates reduce the overall cost of borrowing and slow the rate at which debt accumulates.

Current Trends and Considerations

As of the time of writing, the UK economic landscape is experiencing fluctuations in gilt yields due to various factors, including economic uncertainty, inflation concerns, and central bank policies. For instance, the Bank of England's monetary policy decisions, such as changes in the base interest rate, can significantly influence gilt yields and, consequently, lifetime mortgage interest rates.

Prospective lifetime mortgage borrowers should monitor these trends and consider seeking advice from financial advisors to understand the best timing for their needs. Additionally, borrowers should compare different lifetime mortgage products, as interest rates can vary between providers, and some may offer fixed rates that provide certainty over the long term.

What are the names of equity release lenders?

Its reassuring to see there are so many household names in this space. Here is the current list of Lifetime Mortgage lenders in the UK. One of the most important distinctions with equity release is as a client you can't directly apply to a lender. You must always receive professional advice and therefore your application always must to be submitted via your adviser. When choosing an adviser, its important that you go with a "whole of market" adviser. We will explore why this is important in our article below.

Aviva

Canada Life

Just Retirement

Legal & General

LV (Liverpool Victoria)

Livemore

More 2 Life

Pure Retirement

Royal London

Standard Life

Scottish Widows

The importance of choosing a Whole of Market (WOM) advisor

As the population ages, the demand for equity release products continues to grow, offering a viable solution for many seniors seeking to unlock the value tied up in their homes. However, navigating the complex landscape of equity release requires expert guidance. This is where a whole of market equity release adviser becomes indispensable. Here, we delve into why it is crucial to choose a whole of market adviser as a client.

Access to a broad range of products

A whole of market equity release adviser has access to the entire spectrum of equity release products available in the market. Unlike tied or restricted advisers, who can only offer a limited range of products from a single provider or a select few, whole of market advisers can compare offerings from all providers. This comprehensive access ensures that clients receive tailored advice based on a full assessment of the available options, ultimately leading to better-informed decisions.

Unbiased and impartial advice

One of the core advantages of working with a whole of market adviser is the assurance of unbiased and impartial advice. Since they are not tied to any specific providers, these advisers can objectively assess the merits and drawbacks of various products. This objectivity is crucial in helping clients find the best solution that aligns with their unique financial circumstances and long-term goals, without the influence of provider-specific incentives.

Potentially better interest rates and terms

The ability to choose from a wider range of products can significantly impact the financial outcomes for clients. Whole of market advisers can identify the most competitive interest rates, flexible terms, and unique features that best suit an individual's needs. This thorough comparison can lead to substantial savings and enhanced financial security over the long term. Clients are more likely to find an equity release plan that offers better value and aligns closely with their personal financial objectives.

Tailored solutions

Every client's financial situation is unique, requiring a bespoke approach to equity release. Whole of market advisers excel in tailoring solutions to meet individual needs. They take the time to understand each client's circumstances, including their current financial position, future aspirations, and potential risks. This personalized approach ensures that the chosen equity release product is not only suitable but also optimized for the client's specific requirements.

How to Find a Whole of Market Equity Release Advisor

• Equity Release Council: The Equity Release Council is the industry body for the sector. Their website features a directory of qualified and regulated advisors.

• Unbiased: This online platform connects consumers with independent financial advisors specializing in various areas, including equity release.

• Recommendations: Ask friends, family, or other professionals (e.g., solicitors) for recommendations of trusted advisors.

Important things to consider:

• Qualifications: Ensure your chosen advisor is qualified and regulated by the Financial Conduct Authority (FCA). The two recognised qualifications are CeRER (Certificate in Equity Release) from the London Institute of Banking and Finance and ER1 from the Chartered Insurance Institute (CII)

• Experience: Opt for an advisor with a proven track record and extensive experience in equity release. You can check their Linkedin profile and/or company website if available.

• Fees: Understand the advisor's fee structure upfront to avoid surprises. Most advisers charge a fee when an application completes so you don't have to pay anything upfront, while some may charge and upfront fee. Always confirm this with the adviser.