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What is Equity Release?

It is becoming increasingly popular for those aged over 55 to explore options for releasing equity from their property. Tied up cash that can be used elsewhere, usually for home improvements, to consolidate debts, to help family members get on to the property market, there are a whole range of reasons.


If you are considering releasing equity then I suggest you speak to a specialist but this article will introduce you to the two main options on the market in 2018.


Releasing Equity from your Property

In many places throughout the UK, property prices have increased significantly over the last two decades. It really was once possible to buy a 3xbed family home in a decent area for less than £50,000. The same property today could be worth in excess of £200,000. Using this example, if you only have £10k to pay on your mortgage, in essence you have equity of approximately £190,000 tied up in your property.


According to Key Retirement Advice homeowners released equity from their properties totalling over £3bn in 2017. Sales of equity release plans were up almost 40% in 2017 from the previous year.


The two main forms of equity release are Lifetime Mortgages and Home Reversion Plans.


Lifetime Mortgage - This type of mortgage is secured against your home and allows you to release capital that would otherwise be tied up. The following requirements often apply:


Do I qualify for a Lifetime Mortgage?

  • I’m 55+ (minimum age lenders will accept)

  • UK resident and own my home

  • My property is located in the UK

  • My property’s value is at least £70K

  • Mortgage free or able to repay existing mortgage on completion

  • I plan to release a minimum of £10,000

The loan is then paid back when the final person living in the house dies, sells the house or goes in to care.


Home Reversion Plan - Similar, in that with this option you are also releasing tied up cash from your property but different in that the mortgage company effectively buy part or the full property from you for less than the current market value. The loan is repaid when the property is sold, when you move out or upon your passing.


Any kind of borrowing should always be discussed with an industry expert. Make sure you do your homework before making a decision on whether this is a suitable strategy for you. Equity release is now governed by the Financial Conduct Authority so it is well worth exploring their site to learn more on this topic.


The following links will also be of use:

The Equity Release Council

Equity Release Calculator

Money Supermarket - Mortgage Calculator


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