Both Ian Dilks and Neil Maguire from LFP mortgage solutions are fully compliant and qualified (CF7) HR1 equity release brokers and licensed to give advice in lifetime mortgage and home reversion schemes. 

LFP mortgage solutions accesses all providers and establishes the most appropriate product and provider for the client’s needs. We would strongly advise a meeting for clients to fully appreciate this particular area of lending as thorough review of circumstances is essential for us to ascertain whether equity release should be used.

There are essentially two types of equity release, however before arranging these you should consider the following: 

It is important to establish whether there are any other ways you could meet your financial needs before choosing an equity release scheme. Some ways might be to:

1.    Claim any benefits you might be entitled to.

2.    Check to see if the local authority can help you to pay for essential home improvements.

3.    Trace any pensions you may have lost track of using the pension tracing service.

4.    Use your savings or sell your investments, but consider getting advice before doing so.

And/or

5.    Sell up and buy somewhere smaller and cheaper "downsize"

What is equity release?

Equity release is a way of getting cash from the value of your home. These schemes can be helpful in certain circumstances, but not suitable for everyone. For example, they can be expensive and inflexible if your circumstances change in the future and may affect your current or future entitlement to state benefits. Equity release schemes are not necessarily distress purchases for those who simply have no funds. More recently these products have been used for a broader range of reasons, including supporting  family and children onto their first property, private education, private health care and tax planning to name a few.

How does it work?

One way is to borrow a lump sum secured against your home and another way is to sell part of or all of your home to give you a regular income or lump sum, or both – you can continue to live there. You will most likely need to have paid off your mortgage or have a very small outstanding mortgage to qualify for an equity release scheme. The following outlines the two most commonly used schemes, however please bear in mind that these in themselves are subject to variations on how the proceeds are paid to you. In addition to this, a straightforward mortgage on an interest only basis can also be included as a way of releasing equity, assuming you are happy to meet the monthly payments. 

Lifetime Mortgage

A Lifetime Mortgage allows you to release equity from your home as a tax free lump sum, a tax free monthly income, or a combination of both.

Lump sum gives you a tax free cash lump sum only. Ideal for paying for the home improvements you have been saving for or settling outstanding debts.

Monthly instalments provide you with an additional tax free monthly income for the rest of your life or until you move into long term care. Helping you to pay your day to day living costs, or to give you that little extra to afford life’s little luxuries.

Lump sum plus monthly instalments gives you a tax free cash lump sum, sometimes urgently required, followed by a regular tax free monthly income for the rest of your life or until you move into long term care.

Drawdown facility gives you an option to take a series of lump sums as and when needed up to an agreed limit. As the money is taken, the amounts drawn down are simply added to the amounts owing. The advantage of this type of plan is that you only pay interest on the amounts drawn down so the amount of interest that accrues would be less than if you took the entire lump sum up front.

The money released to you can be at a fixed rate of interest, therefore you never have to worry about the effect of rising interest rates.

Under each of the above schemes there are no regular payments to make. Instead interest is rolled up and added to your mortgage which is repaid, usually from the sale proceeds from your home, when you die or move into long term care.

Remember with a lifetime mortgage you continue to own your home and you can still benefit fully from any subsequent rise in house prices. This is a Lifetime Mortgage. To understand the features and risks ask for a personalised illustration.

How much can you release?

For example lets say, Mr Jones is 72 and owns a home worth £180,000. He decides to raise some of the equity in his property to fund home improvements, buy a new car and take more holidays. With a lifetime mortgage he could raise a maximum of £68,400 (38%)

           LTV table source: The Exchange 21/12/2006

Home Reversion

In some cases, depending upon individual circumstances, we will recommend a Home Reversion Scheme. With a Reversion Scheme you agree to sell a percentage of your property to a Reversion Company in exchange for a guaranteed lifetime lease and a tax free lump sum. The lifetime lease allows you to continue to live in your home, rent free, for as long as you wish. The amount you receive will be discounted to take account of the fact that it could be many years before the Reversion Company actually receives their share in your property.

With a Reversion Scheme you have the option to only sell part of your property, for example 25%, 50% or 75%. As a result you will raise less money than if you sold 100%, however, you retain the benefits of still owning part of your home. This can guarantee an inheritance of part of your equity to your beneficiaries and means that you can also sell all or part of the remaining unsold proportion at a later date if you, or your family, require additional funds.

Advantages of Reversion Schemes

You know what proportion of your home will be used at the outset.

You don’t have to worry about the effects of rolled up interest.

You can guarantee to leave a fixed proportion of your equity to your estate.

You can raise additional funds in the future by selling all or a further part of the unsold proportion of your property.

You’ll receive a tax free lump sum, or enhanced tax free annual payments, that you can spend or invest in any way you wish.

You could reduce any potential Inheritance Tax liability you may have.

Disadvantages of Reversion Schemes

You’ll be selling your property for less than the amount you would receive if you were to move elsewhere and sell the property unoccupied. A Reversion Scheme may therefore represent poor value if it is only in existence for a short period of time.

Your eligibility for means tested state benefits, as with other equity release schemes may be affected.

You will only benefit from rising house prices on the proportion you still own.  

This equity release product may involve a lifetime mortgage or a home reversion plan. If so, to understand the features and risks, ask for a personalised illustration.