One of the Yours guides – designed to
Guide to
Equity Release
in association with
Dear
Yours reader,
In these days of shrinking pensions and rising property prices, equity release is growing in popularity among over-55s.
Regulation has improved in recent years, too, making it a safe, convenient way for many of us to free up some of the value in our homes. But taking out an equity release plan is also a major financial step, so it’s vital you get all the information you need before you go ahead.
That’s what this guide aims to do. It clearly outlines the different kinds of equity release plan on offer and the safeguards that are in place to protect you, your home and your family. The aim is not to convince you that equity release is right for you, but to give you unbiased information so you can make the decision that’s right for you.
We hope you find it useful.
Sharon Reid Editor
Why equity release? 4
Getting started 5
Which plan is right for me? 6-9 Who qualifies for equity release? 10
How you are protected 11
Equity release case studies 12-15
Your questions answered 16-17
What do I do next? 18
Introducing Key Retirement Solutions 19
T
housands of homeowners in or approaching retirement have unlocked the wealth tied up in their homes to give themselves a much needed cash boost. If you’re a homeowner aged 55 to 95 and in need of a tax-free cash lump sum, equity release might be the ideal solution for you. What’s more, with an equity release plan there are typically no monthly repayments and you can stay in your home for life.When it comes to releasing cash safely from your home, it’s vital you speak to an independent expert.
For this reason, Yours has held a successful partnership with Key Retirement Solutions for more than five years, they’re the leading firm of equity release specialists in the UK.
We chose them carefully as our partners because of their specialist knowledge and trusted reputation.
Key aim to make the whole process of equity release simpler and easier to understand so that you can be confident you are choosing the right solution for you. They will also explain how your entitlement to state benefits may be affected and how the value of your estate will be reduced.
Contents
Equity release
An equity release plan can be a useful solution if you find yourself in need of an additional cash boost.
You can spend the money in any way you want:
● Making home and garden improvements, such as an extension or new kitchen
● Paying for a special holiday, or to fund a family celebration
● Helping your family or friends, perhaps with deposits for property or costly bills
● Clearing outstanding mortgage, loans or credit card debt
● Passing some capital down to the next generation so they can benefit during your lifetime
● Making it easier to meet day-to-day living costs
● Buying a new car or caravan
Think carefully before securing other debts against your home.
Popular uses of equity release
Why equity release?
In most cases, you will qualify for equity release if you’re a homeowner aged between 55 and 95, are residing in the UK and your home is worth more than £70,000.
Equity release potentially gives you the best of both worlds. You don’t need to leave the home you love and, at the same time, you can benefit from some of the value that has built up in it over the years.
However, it is essential to seek advice from an independent specialist adviser first.
They will search the whole market on your behalf to find the best plan for you. Their top priority will be making sure that equity release suits your personal circumstances.
Getting started
Will I still be entitled to benefits?
It is possible to release equity and still receive the benefits you are entitled to. However, raising cash from your home could affect your entitlement to some means-tested benefits, such as Pension Credit or Council Tax Benefit. If your entitlements will be affected, your independent specialist adviser can help you decide whether the money unlocked from your property would offset any possible loss of benefits.
The average Key customer released £64,112 based on an average property value of £235,648.
14%
28%
21%
20% 31%
57%
Treat family and friends
Clear outstanding
mortgage Pay debts (e.g.
loans, credit cards) Help with
regular bills Home and/
or garden improvements
Go on holiday
Source: Key Retirement Solutions Data 2013.
Source: Key Market Monitor Half Year Report (Half 1 2013)
Which plan is right for me?
Once you have had an appointment with an independent adviser, they will carefully consider all your options and give you a full recommendation as to whether equity release is the best option for you at this time.
Lifetime Mortgages
A lifetime mortgage is a form of equity release plan where a loan is secured against your property to provide you with a tax-free cash lump sum to spend as you wish, with typically no monthly repayments to meet.
Compound interest is added to the lifetime mortgage loan throughout your lifetime. The loan plus interest is eventually paid back when the home is sold, usually when you move into long term care, or when
you and your partner die. You can typically release between 18-50% of the value of your property with a lifetime mortgage, depending on your age.
Drawdown Plans
Drawdown lifetime mortgages work in the same way as general lifetime mortgages but with added flexibility.
Once you know the maximum amount of money you can release, after an initial release amount you can then choose to
‘drawdown’ the cash in stages as and when you want to. The interest is only added when the funds are released so it adds up more slowly than it would if you released the full amount at the outset. These are a flexible option and can form an essential part of planning your future finances.
Which plan
is right for me? Enhanced Plans
If you or your partner has any health or lifestyle conditions you may be able to release more money from your home.
Health issues such as diabetes, heart problems or high blood pressure are typical examples where you could qualify for an enhanced equity release plan. The same also applies to lifestyle factors such as heavy smoking. You may miss out on thousands if you choose an adviser who cannot advise on this.
Protected Plans
If you want to guarantee an inheritance for your family this is now possible with some lifetime mortgages. A couple who are able to release £50,000 and want to ensure their grandchildren are left with an inheritance could take £30,000 (60%
of the maximum available) leaving 40% of the property ‘protected’.
Combined Plans
Flexibility within lifetime mortgages, means that advisers are able to assess how you could benefit from a combination of these options to not only save your estate money but also tailor your plan to your current and future needs.
Example: If you want an inheritance for your family and need lump sums of money at different stages over the next 15 years, you may be able to have a protected plan with a drawdown facility.
There are lots of different equity release plans to choose from and each one addresses slightly different needs. This is why it’s so important to obtain independent specialist advice.
Some advisers only deal with the company they represent.
It’s always preferable to take advice from someone who is truly independent and who will be able to search the whole market to make an informed recommendation.
Home Reversion Plans
With a home reversion plan you sell part or all of your home to a reversion plan company in exchange for a tax- free cash lump sum and a guaranteed lifetime lease with no monthly repayments to meet.
You have the absolute right to stay in your home rent-free for as long as you choose which is why you don’t typically receive full market value for the share of the home you sell. Both you and the reversion plan company share in any increase in your property’s value, providing you have not exchanged 100% of its value. With home reversion plans you are also able to guarantee an inheritance to your beneficiaries.
When the plan comes to an end, the home reversion provider takes its percentage share of the sale proceeds from your property.
Lifetime Mortgages and Home Reversion Plans offer the following options:
● Receive a tax-free cash lump sum
● Typically no monthly repayments
● ‘No negative equity’ guarantee
● Stay in your home for life
● Move and take the plan with you (subject to lender criteria)
● Protect a percentage of your property / guarantee an inheritance
● Entitlement to some state benefits may be affected
● Regulated by the FCA
● Specialist independent advice should be sought
● The value of your estate is reduced
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Comparison chart
Take smaller amounts of money when you need them
You own your home
You sell a share of your home Interest accrues on the loan Secure a pot of money for the future
Feature Lifetime
Mortgage Home
Reversion Drawdown Plan
✔
✔
✔
✔
✔
✔
✔
✔
✔
To meet the growing needs of people wanting to take equity out of their homes, it is now possible to get interest payment mortgages.
Interest payment works on the same basis as a lifetime mortgage and you choose how much interest you want to pay and how long you want to pay the interest charged each month (for example, 1 year, 5 years or even up to the lifetime of the loan).*
The advantage of this option is by paying some interest payments during the plan term, the amount your provider takes at the end of the plan will be less, as you have already paid off some or all of the interest accrued. Also, if for any reason you are unable to make repayments, this plan can be converted so interest is added as with a standard lifetime mortgage.
With new options such as this it is essential that you seek specialist
independent advice and speak to to an independent adviser to find the best plan for your needs.
*Subject to minimum interest payment.
Interest Payment Plans
Differences between plans
The following rules for qualification will normally apply:
● You must be aged 55
or over
● You must own a property worth at least £70,000
● You must live within the
The Financial Conduct Authority (FCA) regulates all equity release plans. The FCA rules state that all promotions must be clear, fair, balanced and not misleading.
This should make choosing between plans relatively easy, as information has to be given in such a way that you can compare details. These rules give further protection, security and, if need be, access to compensation schemes.
Anyone looking at equity release should consider a plan approved by the Equity Release Council (ERC). Under the ERC code of conduct, members agree to clearly set out all the benefits, obligations and costs.
Potential plan-holders must have their own independent legal advice. As an added precaution, ERC members only accept
business from advisers who hold specialist equity release qualifications.
The ERC guarantees include:
● A ‘no negative equity’ guarantee, so you can never owe more than the value of your home
● The right to remain in your home for as long as you choose
● The freedom to move to another property, without financial penalty (subject to provider criteria) These guarantees ensure that, as long as the plan you’re considering is offered by an ERC member, your best interests are well protected.
How you are protected
Top tip
Always look for the Equity Release
Council logo on company leaflets and
websites The following rules for qualification will
normally apply:
● You must be aged 55 or over
● You must own a property worth at least £70,000
● You must live within the UK or in Northern Ireland
● The property must be freehold or leasehold with a minimum remaining lease period of 75 years
Who qualifies for equity
release?
Rules for
qualification
“It allows you to enjoy life”
George and Margaret Nash took out a lifetime mortgage George and Margaret were getting
by financially, but couldn’t enjoy their retirement in the way that they had hoped. So when they read about equity release, it seemed to make good sense.
“George and I never had really well-paid jobs, but we always knew our house was worth a bit,” says Margaret, 66. “We thought it was silly to have so much cash tied up when it was a struggle at times to find available funds to go on holiday.”
Rather than making any rash decisions, the couple decided to do their
homework. When the adviser came to visit us she was detailed and thorough,
but never probed or pried into our affairs.
I trusted her from the minute we met.”
“We took out £42,000 in the end, which we used to buy a lovely motor home,”
says Margaret. “We purchased it outright for £27,000 and the remaining money went towards home and garden improvements, including a new driveway, new fencing and lots of other bits and pieces.”
“I would strongly recommend equity release to anyone who has money tied up in their home. We don’t know how long we have left in this life and it allows you to enjoy the things that really matter.”
Before making a decision about releasing equity, you may find it helpful to read about other people’s experiences. The examples on the following pages will give you an idea of how you might use a lifetime mortgage or home reversion to free up a lump sum.
There are plenty of reasons why people decide to release equity. Research carried out by Key Retirement Solutions, shows that one of the most popular is to make home and garden improvements, such as a new kitchen, conservatory or driveway. A significant number use their cash to clear outstanding mortgages and help out with regular household bills. Others use it to treat family and friends, go on holidays and make one-off purchases, such as a car.
Drawdown plans, in particular, have become more popular in recent years, and now account for 66 per cent of the
What is
Equity Release really like?
Case studies
Did you know?
In 2012 there was a ten per cent growth in the number of equity release plans sold, and 88 per cent were bought through independent advisers
equity release market. However, the number of lump sum plans taken out also grew by five per cent in 2012.
The following case studies are typical of people taking out equity release plans and demonstrate how they can be of benefit in a variety of situations.
Source: Equity Release Council.
Michael and Sheila are 70 and 65 and have been retired for several years.
Although their pensions allowed them to live quite comfortably, they wanted to enjoy occasional treats, both for themselves and their family.
“Our neighbours recently chose to downsize their home and sold their house for £250,000,” says Michael. “Our house is worth the same amount but, although we would have loved the extra cash, we didn’t want to leave the home where our family grew up.”
Michael and Sheila decided to talk to an independent specialist adviser about releasing cash from their home through an equity release plan, which would allow them to stay where they are. Their adviser explained all the plans available to them and, after discussing the options with their family, they decided to opt for a drawdown lifetime mortgage. This would allow them to release up to £45,000.
Michael and Sheila particularly liked the idea that they didn’t have to take the full amount at the outset, but had the option of making cash withdrawals in future years if necessary.
“We took an initial lump sum of £15,000, which we used to treat ourselves to a Ruby wedding anniversary celebration and book a few holidays abroad with
“The money’s there if we
need it”
Michael and Sheila Murray opted for a drawdown lifetime mortgage
family and friends,” says Michael. Three years later, the couple decided to release a further £10,000 to help their daughter get onto the property ladder.
“It’s comforting knowing that we can withdraw more money later on if we need to, and interest will only be added to the amount of cash we choose to withdraw.”
Example case study
Case studies
“I don’t have to worry about
repayments”
Edward Stott chose a home reversion plan
Edward (76), owns a semi-detached house worth around £200,000. Although he had enough money to live on each month, he didn’t have the funds he needed to make home improvements. “I wanted to add a new kitchen and a conservatory to the house so that I could enjoy my garden all year round,”
says Edward, “but I knew I wouldn’t be able to meet the monthly interest payments on a conventional loan or mortgage. My son and daughter suggested an equity release plan might be more suitable for me.”
Edward’s independent specialist adviser talked him through all the options available to him. In the end he decided to free up a tax- free cash lump sum of £48,575 by using a 50
per cent proportion of the value of his home under an ERC-approved home reversion plan. This means that the plan provider will receive half of the property on Edward’s death, leaving the other half to be passed on to his family.
Edward is very pleased with the plan. “It means I can spend the money now and not have to worry about any monthly repayments,” he says. “By keeping a percentage of the value in my home, I still get to benefit from any increase in value. Plus, I can guarantee an inheritance for my family.”
Edward has now built his new conservatory and can enjoy his garden in comfort and warmth, even during the winter months.
Example case study
Q
What happens if I want to move home in the future?A
It makes sense to look for flexibility in equity release plans. Many plans allow you to move home and take your plan with you. Each provider has specific criteria that apply concerning moving home so you should check this when you take out a plan.Q
Is equity release regulated?A
Yes. Equity release is regulated by the Financial Conduct Authority (formerly Financial Services Authority).This is an independent body reporting to the government that helps to ensure that equity release advice offered to the public
is fair and meets its required standards.
For extra safety, consider equity release plans approved by the Equity Release Council. These will allow you to remain in your property until you and your partner pass away or move into long-term care.
Q
Why should I seek advice when considering equity release?A
There are many different products and offers available at any given time. By receiving independent advice you can be sure that only the plan that best suits your individual circumstances will be recommended to you.Equity release Q & A
Your questions answered Q
Can we still leave an inheritance?A
Yes. A protected lifetime mortgage or a reversion plan could provide you with some comfort, especially if you don’t need to release the maximum amount possible from your home. A protected plan guarantees there will always be an agreed percentage of your home’s value to be left to your beneficiaries, regardless of what happens to house prices.Q
Will I have to make any monthly payments?A
No, not unless you choose to do so with an interest payment plan, in which case you will need to make interest payments. This will prevent the roll-up ofinterest over the lifetime of the plan, or reduce the amount owed.
Q
Can I apply if I have an outstanding mortgage?A
Yes. It will be a condition of the equity release plan provider that the outstanding mortgage is repaid. The equity you release can be used for this purpose, but this will reduce the lump sum available to you.Q
Will I be able to stay in my home?A
Yes. You should only consider equity release plans that guarantee the right to carry on living in your home for as long asyou wish. *Pictur
es posed by models
This exclusive Yours guide to equity release, is your first step to equity release and discovering financial freedom. Key Retirement Solutions are the UK’s number one independent equity release specialist, and we are committed to ensuring you have the full story when it comes to unlocking the cash from your home.
By choosing this service you can access a wealth of knowledge, experience and expertise.
They are:
● Impartial and independent specialists in equity release
● Committed to offering exclusive deals that are regularly the best on the market
● Consistent consumer and industry award winners
● Members of the Equity Release Council
● Dedicated to delivering the highest levels of customer care
● Able to offer you a wide choice of equity release council approved plans
● A founder member of SAFER (Specialist Advisers For Equity Release)
So if you’re a homeowner aged 55-95 and would like more impartial information about equity release plans call Key Retirement Solutions free on:
0800 531 6032
or visit:www.keyrs.co.uk/yours
Or write to: Key Retirement Solutions, Baines House, 4 Midgery Court, Fulwood, Preston, PR2 9ZH. Opening hours: Mon-Thurs, 9am-7pm, Fri, 9am-5.30pm
Speak to the
UK experts on equity release
To find out more about equity release, and get advice tailored to your particular circumstances, the next step is to contact a specialist, independent adviser. An impartial adviser will find out more about you and your wishes, then research the entire market to find the best equity release solution for you. If you choose to proceed, your adviser will then help you to apply for your plan.
Next, an independent surveyor will assess the value of your home and an independent solicitor will also be instructed.
Approximately 12 weeks after applying for a plan, you should receive funds from your solicitor to spend in anyway you choose.
Sources of help
Key Retirement Solutions Key are the UK’s leading independent specialists in
equity release. They can help you look at all your options.
0800 531 6032
www.keyrs.co.uk/yours Solicitors
If you decide to take out an equity release plan with an ERC-registered adviser, you are required to take independent legal advice too. If you are not sure which firm to consult, the Law Society website has a
‘Find a solicitor’ tool.
www.lawsociety.org.uk
What do I do next?
What next?
Financial Conduct Authority (FCA) You can check your adviser’s firm is fully regulated and has permission to advise on lifetime mortgages and home reversion plans
by contacting the FCA.
0800 111 6768
www.fca.org.uk This is an equity release plan. To understand the features and risks ask for a personalised illustration.
YOURS Magazine, Bauer Media, Media House, Peterborough Business Park Peterborough, PE2 6EA. Tel: 01733 468000
www.yours.co.uk