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Equity Release
Many elderly people are known to be “asset rich but cash poor” as key financial assets are mainly tied up in the illiquid value of your home. Because your home is worth great deal of money you are effectively sitting on a pile of cash which you can’t get at, whilst at the same time you could do with more income in order to live comfortably. Equity Release is a type of financial arrangement that can help in this situation, by effectively releasing some of the capital in your home without your having to sell up. Equity Release may also be effective in planning against the effect of Inheritance Tax (IHT) liability.
Equity release plans have a minimum qualifying age which for most is 60 or 65. Couples can apply jointly. There is also a maximum ‘loan to value’, or LTV - the highest permitted percentage of the value of your home that you are allowed to realise through the plan. The maximum LTV might start at, say, 20 per cent for a 55-year-old homeowner and rise to 50 per cent for a 90-year-old. There is also usually a plan fee in the region of £500, plus legal costs. You should allow some time to set up a plan as the process can take several months.
Equity release plans
are complicated, and may be daunting for many clients. In the past there have been problems with older style home income plans, when, due to rising interest rates, some homeowners were left with negative equity. Most reputable plan providers nowadays give a “no negative equity” guarantee, but you should still take extreme care in ensuring that you understand what you are buying. It is also wise to discuss your plans with your family.
Equity Release mortgages
are niche products aimed at fulfilling the needs of a highly-defined market segment. They are designed primarily for older people. The features of Equity Release mortgage products differ fundamentally from conventional mortgages for house purchase and improvement and there are therefore several other factors to take into account in order to determine if such a product is right for you as these arrangements may expose you to risks that are not encountered with traditional mortgage arrangements.
Equity Release products
are not suitable to every elderly person. Check that this product will meet your needs if you want your family or others to inherit your home. If you are in doubt, seek Independent legal and financial advice.