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If you are looking for equity release in Bournemouth, you are likely to be a homeowner aged 55 or over who is thinking about releasing some of the value tied up in your property. Equity release can be the right answer for some people, but it is a long-term decision with significant costs. It affects what you leave to your family and can affect your entitlement to benefits. This guide explains how it works, what to weigh up and which alternatives are worth considering first, so that any conversation with an adviser starts from a clear footing.
Equity release is a personal finance product rather than a form of business borrowing. Business owners who want to raise money against commercial premises are in a different area altogether, which usually needs a specialist commercial finance broker.
Equity release in Bournemouth: the basics
Equity release lets you access money tied up in your home without having to move out. The money can be taken as a single lump sum or in smaller amounts over time. Unlike a standard mortgage, you usually do not have to make monthly repayments, although some plans let you pay some or all of the interest if you wish. The amount available depends mainly on your age, the value of your property and, with some plans, your health.
People usually consider equity release to meet a specific need, such as repaying an existing interest-only mortgage that has reached the end of its term, adapting a home so that it is easier to live in, or covering essential costs in later life. Whatever the reason, it is worth asking whether equity release is the most suitable way to meet that need, or whether another option would cost less over time. For a local overview of the subject, see Equity Release in Bournemouth.
Lifetime mortgages and home reversion plans
There are two main types of equity release, and they work in quite different ways.
Lifetime mortgages
A lifetime mortgage is a loan secured on your home. You keep ownership of the property, and the loan plus interest is normally repaid from the sale of the home when you die or move into long-term care. Some plans let you pay the interest each month, which slows down or stops the growth of the debt. Others let you draw money in stages from a reserve, so interest is only charged on what you have actually taken. An explanation of how lifetime mortgages work is available if you Click Here.
Home reversion plans
With a home reversion plan, you sell all or part of your home to a provider in return for a lump sum or regular payments. You keep the right to live there, usually rent-free, for the rest of your life. The amount you receive is normally well below the market value of the share you sell, because the provider will not receive its money until the property is eventually sold. When that happens, the provider takes its share of the proceeds, including any rise in value. Home reversion is much less common than lifetime mortgages, but it can suit some circumstances.
The costs and trade-offs to understand
Interest usually compounds
With most lifetime mortgages, interest is added to the loan and then charged on the new, larger balance. This is known as roll-up or compound interest. Over a long period the amount owed can grow substantially, and it can end up as a multiple of the sum originally borrowed. Ask for illustrations showing how the debt could grow over different time frames, and read them carefully.
It reduces inheritance
Because the loan and interest, or the provider’s share, are repaid from your home when it is sold, equity release will reduce what you can leave to your family. Some plans let you protect a percentage of your property’s value as an inheritance, but doing so reduces the amount you can release. It is sensible to talk openly with your family before you decide, so that nobody is surprised later.
It may affect means-tested benefits
Money released from your home can affect your entitlement to means-tested benefits, such as Pension Credit or Council Tax Reduction, both now and in the future. Holding a released lump sum in savings can have the same effect. An adviser should check this with you, and a benefits check from a charity or a local advice service can help too.
Early repayment charges
Equity release is designed to last for the rest of your life. If you want to repay a lifetime mortgage early, or move to a property the provider will not accept, you may face a substantial early repayment charge. Check how any charge is worked out, how long it applies and whether there are exemptions, for example after the death of the first partner or on moving into long-term care.
Protections to look for
Plans from providers that are members of the Equity Release Council must meet its product standards. These include a no-negative-equity guarantee, which means you will never owe more than the value of your home when it is sold, provided you keep to the terms and conditions of the plan. They also include the right to remain in your home for life, or until you move into long-term care, again as long as the property remains your main residence and you keep to the plan’s terms, such as keeping the home insured and in reasonable repair. Lifetime mortgages that meet the standards must also have fixed or capped interest rates and allow you to move to another suitable property, subject to the provider’s criteria.
These protections are valuable, but they do not remove the costs described above. They limit the risk of owing more than your home is worth; they do not make equity release cheap or right for everyone.
Alternatives to consider first
- Downsizing. Moving to a smaller or less expensive home can release money without borrowing, although moving has its own costs and upheaval.
- Retirement interest-only mortgages. These work like a standard interest-only mortgage for older borrowers. You pay the interest each month, so the debt does not grow, and the loan is usually repaid when the home is sold. You must show that you can afford the monthly payments. Your home may be repossessed if you do not keep up repayments on a mortgage of this kind.
- Help from family. A gift or loan from relatives may be possible, although everyone involved should understand the implications, ideally with advice.
- Grants and local support. Some home adaptations can be funded through a Disabled Facilities Grant, which BCP Council administers locally, and charities can sometimes help with essential repairs.
- A benefits check. Many older people are not claiming everything they are entitled to. A benefits check could increase your income without touching your home.
- Savings or other assets, where these are available.
How to approach equity release in Bournemouth
1. Start with your needs and your alternatives
Be clear about what the money is for and how much you actually need. Releasing more than you need increases the cost, because interest builds on the whole amount. A drawdown plan can help keep borrowing to a minimum.
2. Speak to a qualified equity release adviser and involve your family
Equity release advice must come from an adviser who holds a specific equity release qualification. A good adviser will look at the alternatives as well as the plans available, explain all costs and fees in writing, and encourage you to involve family members or someone you trust in the discussions. Ask how the adviser is paid and what you will be charged before you proceed. For a local perspective, see Barrett Mortgages.
3. Take independent legal advice
Before an equity release plan can go ahead, you must receive independent legal advice from a solicitor who acts for you rather than for the provider. The solicitor will explain the legal implications, confirm that you understand the plan and are entering into it freely, and sign a certificate to that effect.
Equity release is a big decision that can be difficult and costly to reverse. Taking your time, comparing it with the alternatives and involving the people closest to you is the most sensible approach. For contact details, see Contact Barrett Mortgages.
