Record numbers of people are choosing equity release mortgages but how do they work?
New figures show that record numbers of people are opting for equity release mortgages. Maria Richards of the Residential Property team explains how the schemes work.
“According to figures released by the Equity Release Council, more people than ever before are choosing equity release mortgages. The total value of equity release lending in the first quarter of 2017 reached £697million – up by 77 per cent on the first quarter of 2016.
“Equity release mortgages are available to homeowners aged 55 and over. They allow homeowners to unlock the wealth held in their housing to boost their retirement finances. They can be a great option for those people who took out Interest Only mortgages and now find that they are coming to the end of their term with no means of paying off their mortgage.
“The money available through equity release will be determined by the homeowner’s age, the state of their health and the value of their property. The money can be used for whatever the homeowner chooses but if they want to stay in their own home and pay off their current mortgage and they have no savings to fall back on, it is an ideal way of achieving this.
“There are two types of schemes available:
“This is the most popular type at the moment and provides a cash lump sum. No repayments are required during the term of the mortgage and the loan is paid off when the home is sold or when the homeowner enters into long term care, or upon their death. Many schemes will offer a No Negative Equity guarantee so that the amount to repay will never exceed the amount of the market value proceeds of sale.
Home Reversion Plan
“This type of scheme means that the homeowner sells a percentage of their property to the provider who grants them a lifetime lease in the property rent free in return for a tax free lump sum. When the property is sold when the homeowner dies, the proceeds of the sale are divided between the plan provider and the homeowner’s estate in the percentage that each of them owns.
“Homeowners who find themselves in the situation where they cannot pay off their mortgage at the end of their term and are facing repossession proceedings should as soon as possible seek advice from an Independent Financial Advisor who will help them decide if an equity release mortgage is for them. They will advise on which scheme would be best and how much of the value in their property they could leave as inheritance.
“Once the homeowner has received advice and decided which scheme is right for them they need to appoint a solicitor to act on their behalf. Coodes has a specialist Equity Release Team who can guide the homeowner through the process and advise them on the implications of entering into such a scheme.”