It pays to be cautious with the cash in your property
Now that we’re all living longer, equity release can seem like a good way to get hold of some extra cash in retirement. But it comes with a set of risks – and it may work out more expensive than downsizing. To ensure you make the right decision, it’s worth taking some time to consider the alternatives, ideally with the help of a financial advisory firm like Macbeth.
What is equity release?
If you’re over 55, equity release enables you to access the cash that’s tied up in your home without having to move. You’re free to use the money for anything you want – from home improvements, a holiday or a new car to paying off debts or making gifts as part of an inheritance tax strategy.
"Over time there has been much criticism of equity release schemes – and rightly so. Specialist equity release advisers, even those that are FCA approved, should be approached with caution. Ultimately their intention is to sell a product and not perhaps give the right advice. At Macbeth we cover all areas of financial planning and therefore may be able to propose other options too – ones that are best for you."
- Simon Claxton, financial services specialist at Macbeth
How equity release works
There are two main equity release options – lifetime mortgages and home reversion plans. A lifetime mortgage lets you borrow money against the value of your home without losing ownership. With a home reversion plan you sell all or part of the property in return for a lump sum or regular payments.
We'd usually recommend that a client downsizes to access the cash tied up in their home. But if your circumstances are such that equity release is the right option, we can review all the solutions on the market and recommend a lifetime mortgage or home reversion plan that suits you best.
- Lifetime mortgage – instead of making monthly repayments to a lender, the interest is added to the loan and the total amount is paid back when your property is sold, usually when you die or move into a care home
- Home reversion plan – after you’ve sold all or part of your home, you can continue to live in it for the rest of your life, but you must maintain and insure the property
Equity release isn't right for everyone as it can affect your entitlement to state benefits and local authority support.
Why you should speak to a financial adviser about equity release
- Equity release can be used to support your retirement in later years and it may reduce potential inheritance tax in the right circumstances. However, it’s usually the last resort – and we recommend that family members are involved in our discussions to ensure that other options such as downsizing are explored.
- Lifetime mortgages tend to have a higher rate of interest than ordinary mortgages. And home reversion plans don’t offer anything close to the true market value of a property. Set-up and arrangement fees can be costly too.
- Equity release can affect your entitlement to state benefits and local authority support – and it may also have tax implications.
- The aim of a specialist equity release adviser is to sell a product – so you may not be given the right advice.
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"Simon has helped us through the complexities of the mortgage market over the years culminating in guiding us to the best overall Equity Release scheme. We can now enjoy our lovely home for the rest of our lives and can relax in the knowledge that we have the best arrangement in place from the extensive research Simon carried out.”