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Quarterly figures recently released by Equity Release specialist Key Retirement continue to show a strong demand for Equity Release products across the UK. Read on to find out more.

What is an Equity Release Mortgage?

An Equity Release Mortgage, also known as a Lifetime Mortgage, enables you to take out a loan secured against your home (while maintaining ownership) which does not need to be repaid until you die or go into long-term care. This frees up some of the wealth tied up in your home to spend on larger items which might not otherwise be possible. In Key Retirement’s November 2018 figures the most popular reasons for borrowing were:

Home and garden improvements (63%)
Going on holiday (33%)
Paying off existing debts (32%)
Gifting to family or Friends (28%)
Paying off a mortgage (22%)
Paying regular bills (11%)

Sales of Equity Release plans have been showing double digit growth in recent years, both in terms of the number of plans sold and the amount borrowed, which is set to exceed £4bn by the end of 2018. The average age of a borrower is around 70 and Equity Release Mortgages are currently the most popular product, accounting for nearly two thirds of borrowing.

Every region across the UK has experienced growth, both in the total number of plans and in overall lending. While the South East has the largest share of borrowing by number and value of plans, the largest growth is now from the Midlands up to Scotland as the other regions start to catch up.

How does an Equity Release Mortgage work?

Like a traditional mortgage, an Equity Release Mortgage is a loan secured against the value of your home. It can be very flexible, with the most popular schemes enabling you to draw down funds only when needed and giving you the option of making voluntary or partial repayments towards your loan when you can.

Interest is charged on what you have borrowed and this can either be repaid through monthly/ad-hoc payments or rolled up and added onto the loan. When you die or move into long-term care, your home is sold and the money made from the sale is used to pay off the loan with the remaining profit going to your beneficiaries.

It is crucial for you to ensure the rights to your property are not compromised by the scheme you are considering and that the scheme is appropriate to your circumstances. If not, your home could be at risk, or you could end up owing more than you are able to pay back.

An Interest Roll-Up Mortgage or Interest Paying Mortgage?

There are two main types of Equity Release mortgage, the “interest roll-up” mortgage and the “interest-paying” mortgage. These account for nearly all of the market with flexible drawdown products roughly twice as popular as those paying a single lump sum.

Worried about Negative Equity?

The Equity Release Council (“ERC”) is a trade body for companies providing equity release products and ideally you should check that the company you are considering is a member. Members sign up to a code of practice, designed to address serious issues with some of the earliest products in the market.

ERC approved products include a “no-negative-equity guarantee” ensuring that you or you beneficiaries will never have to pay back more than the value of your home even if the debt has become larger than the property value. Other rights include the right to remain in your home during the term of the loan and the right to move home subject to certain criteria.

How can we help?

Before you sign up to any equity release product it is important to take legal advice so that you know what you are signing up to. You should consider the impact on arrangements made in your Will and also how the plan will affect your inheritance tax and care fees situation.

At Backhouse Solicitors we can provide expert advice on equity release schemes, explaining the benefits and potential problems of these arrangements and how they will affect your estate to assist you in choosing the plan that is most suitable for you and your lifestyle. Contact us today to book a free initial consultation with one of our specialist solicitors.