Using Equity Release

Equity release offers you a flexible way to access wealth from your property when needed which can enhance the quality of life for you and your family. Using a lifetime mortgage you retain full ownership of your property ensuring your wealth can be given to your family and beneficiaries.

You could also consider a Home Reversion Plan where you agree to sell part or all of your home in exchange for a cash lump sum. This would mean you retain ownership of part of your home and benefit in the future house prices rises on this proportion.

Amounts you can borrow are referred to as a loan to value (LTV) which are are related to age. If you are aged 55 you can release 31% and at age 85 you can release 61% of the property value.

The interest rate of a lifetime mortgage has reduced considerably in recent years and for lower percentages of the property value rates are from 2.71% pa.


Best Buys - Equity Release

Our best buy list for a lifetime mortgage assumes a husband and wife with the youngest life aged 75 and a property value of £500,000. The mortgages include a fixed rate of interest looking at two loan to value (LTV) levels of 25% and 40% based on a Greater London postcode.

The information below is limited as lifetime mortgages from providers have many additional features such as cash back, reserve facilities, interest repayment options, ad hoc payments, early redemption charge (ERC) methods, inheritance protection, ERC exemptions and downsizing protection that you can consider to optimise the mortgage for your needs. We would recommend you speak to our advisers for full details.

Best Buy Mortgages - Release 20% LTV Provider Rate Type Fee AER Aviva 2.71% Roll-up £5 2.71% Liverpool Victoria 2.77% Roll-up £0 2.81% Legal & General 2.76% Roll-up £629 2.80% More2 Life 2.81% Roll-up £0 2.85% Call for a mortgage quote specific to your needs Best Buy Mortgages - Release 35% LTV Provider Rate Type Fee AER More2life 2.84% Roll-up £0 2.88% Legal & General 2.85% Roll-up £629 2.89% Liverpool Victoria 2.90% Roll-up £0 2.94% Pure Retirement 3.02% Roll-up £895 3.06% Call for a mortgage quote specific to your needs

Table 1: Best Buy mortgage - Releasing 20% and 35% LTV for 1 November 2019

Table Notes: Annuity rates based on a Greater London postcode based on a property vale of £400,000. Based on a husband and wife with the youngest life aged 70 releasing either 20% and 35% loan to value (LTV) with interest rolled-up over a lifetime. The value released is paid as a lump sum although some plans may automatically include a future drawdown facility. No medical enhancements are included in these mortgages. Rate - This is the fixed interest rate charged by the provider. AER - Annual Equivalent Rate shows the actual annual cost as some providers charge monthly interest while others charge annual interest.

House price rise to off-set interest

As a general rule, if the interest rate for a lifetime mortgage is 4.0% rolling-up interest over time and you take 20% of your house price as a cash lump sum, your house price needs to rise 1.0% each year to off-set the interest cost of the mortgage. If you borrow 5% more, house prices need to rise an extra 0.25% each year.

This means the equity in your property after you have taken equity release is preserved if house prices rise 1.0% per year and available to your beneficiaries. If house prices rise at more than 1% the equity in your home would increase.

The following table shows the percentage rise in house prices to comfortably off-set a lifetime mortgage with 4% fixed interest after 10- years based on releasing between 20% and 35% from a £500,000 property.

In the table example you can have a 20% LTV or £100,000 equity release reducing the equity in the property to £400,000. If house prices rise only 1.0% per year the equity in your home will be unchanged at just over £400,000 in 10 years time.

For example, your home is valued at £500,000 with house prices rising 1.0% each year and you release £100,000 at 4% interest rate rolling-up over time. In ten years the your property would be worth £552,311 gaining £52,311 which off-sets the interest on the loan of £48,024.


Accessing cash from your home

You can access cash from your home using a Lifetime Mortgage allowing you to keep control of your home. The two methods you can use are through Lump Sum Mortgage or Drawdown Mortgage.

You have the option to allow interest to roll-up, pay it off as you go or make a repayment of up to 10% of the loan each year without penalty.

Equity release using a lifetime mortgage is an effective way of accessing the wealth locked in your property, to benefit you and your family if some or all of the following are important for you:

	Access lump sums tax free
	Spend the money on anything you want
	No interest payments to make
	Future cash drawdown when needed
	Keep ownership of your property

To find what the maximum equity you could release or LTV from your home you can have a look at the following links:

Lump sum lifetime mortgage - LTV table

Drawdown lifetime mortgage - LTV table

The advantage of a lifetime mortgage is the lender does not need to perform affordability checks or require evidence of your retirement income to offer you capital, unlike a conventional mortgage.

The lender calculates the amount you can borrow using your age, the value of the property and if you have medical conditions, this could also increase the loan to value.

The lenders we recommend are approved by the Equity Release Council which guarantees you will never owe more than the value of your property and this is called a negative equity guarantee.

Equity release allows you to remain in your home for your lifetime or until you move to a care home while helping you to capital.

In retirement you may find income from pensions such as level income annuities or flexi-access drawdown no longer stretch as far as the cost of living continues to increase.

People in the UK that own their own property have benefited from the long term rise in property prices which has created considerable amounts of equity over their working lives.

Beyond retirement age there may be limited opportunities to access capital yet there is considerable wealth tied up in your property that is not providing you with any immediate benefit.

If you do have enough income but little capital, accessing cash could be useful for you or a family member. Lump sum amounts can be gifted to children and grandchildren such as to help with a deposit to buy a property. For larger estates, equity release from your house can reduce the amount of inheritance tax to be paid by your beneficiaries.

Reasons for using equity release

People in retirement may find they need cash for an unexpected event or would like to improve their lifestyle and can turn to their property as a way of releasing equity.

According to the Equity Release Council the average age for equity release is 70 years taking a lump sum of approximately £78,000 with an average loan to value (LTV) of 27.6%.

In 2017 there were 37,037 new equity release buyers aged 55 and older taking a record £3.09 billion from their homes, an increase of 42% compared to £2.15 billion in 2016. For people realising cash from their home, two thirds were to drawdown capital over time and one third was to take a lump sum.

A survey by Just Retirement explored why people use equity release with no single reason and typically they had a number of purposes for money either paid as a lump sum or income.

In the survey 63% of people use equity release to improve their home and this could ultimately add value of their property. Other reasons were to pay off debts, personal loans and interest only mortgages especially when these loans reached the end of their terms.

There are other more specific reasons why equity release is considered as follows:

	Deposit on a property for children or grandchildren
	To reduce equity for Inheritance Tax (IHT) planning
	To improve their lifestyle or standard of living
	Pay university fees for grandchildren
	Help their children start or expand a business
	To pay for long term care

People can consider a number of popular types of equity release such as using a Lump Sum Mortgage, Drawdown Mortgage or home reversion plan and these are very different in how they work.

Must read links for equity release

Learn more about equity release and read our other pages about the types of lump sum and drawdown mortgages you can consider, alternatives to a lifetime mortgage and the steps you need to take to access cash from your home.

Ask us for a free equity release quote to see the maximum lump sum you can receive or the lowest interest rate for a specified cash amount from your home. Call Colin Thorburn on 020 8816 7501 to ask questions about your options.

Best Buys - Equity Release

Equity release lifetime mortgages

Lump sum and drawdown mortgages

Lump sum table - Maximum cash

Drawdown table - Maximum cash

Alternatives to a lifetime mortgage

Steps you take to access cash from your home

Free equity release quote


How can we help

As independent equity release advisers we do the work for you to search and find the best lifetime mortgages from the whole market. We also have access to unique offers not automatically available by lenders such as free valuations to help reduce your costs.

There are hundreds of products with varying terms & conditions which can have an impact on how you change the mortgage in the future. We can help you the technical aspects and advise you on the benefits of each lifetime mortgage lender.

About Sharing Pensions

Sharingpensions.co.uk was created by its founder Colin Thorburn in 2001 to provide a resource to hundreds of thousands of people during retirement making their decision making easier and to select the best options for pensions and equity release.

Colin Thorburn has twenty years experience in retirement planning including equity release, is an individual authorised by the Financial Conduct Authority and business is submitted through Blackstone Moregate Ltd which is authorised and regulated by the FCA (no. 459051).