Equity Release with a Lifetime Mortgage Explained

Equity Release with a Lifetime Mortgage Explained

Will equity release benefit you and your partner (if you have one)?

This article takes a deep dive into equity release with lifetime mortgages to bring you up to speed.

Your home is your most valuable asset. If you’re approaching retirement or have already given up work, you may be wondering how to make some of the money locked up in it work for you. You’ve probably heard about equity release in relation to UK mortgages and property, but might not know exactly what this means or whether it’s likely to benefit you and your partner (if you have one) at this stage of your life. So let’s take a deep dive into equity release with lifetime mortgages to bring you up to speed.

Designed for Homeowners Aged 55+

Your equity is the value of your home minus any amount outstanding on an existing mortgage. Equity release gives homeowners aged 55 and over access to some of the equity – in other words, money – tied up in their property. You continue to own and live in your home, which is ideal if you don’t fancy selling up or downsizing to raise funds.

Generally speaking, equity release enables people to borrow up to 60% of the value of their home, as The Times points out. The specific proportion you’re entitled to borrow will depend on your individual circumstances and chosen equity release plan. But something to bear in mind is that the older a person is the greater the proportion of equity they tend to be able to release.

Releasing Equity to Fund Retirement

‘Equity release can play a crucial role in retirement funding,’ emphasises industry body the Equity Release Council. The tax-free cash you receive can be extremely useful if you’re looking for a way of maintaining or enhancing your standard of living during later life. For example, equity release could pay for a new car, a holiday or home improvements. It could help you to cope with the rising cost of living or support loved ones saving up for their wedding or first home.

What you do with the money is up to you. You can choose to borrow a single lump sum, a series of smaller sums, or both. You could access smaller sums at specific intervals or on an ‘as-and-when’ basis.

Favourable Conditions for Equity Release

Because UK property prices are currently increasing, now could be a particularly good time to tap into the value of your home.

The Land Registry has found that house prices in England rose by 13.1% on average from May 2021 to May 2022. What’s more, ‘the South West experienced the greatest increase in its average property value’ – a 16.9% increase, to be precise. As Devon mortgages experts, we know that’s good news for clients who are considering equity release.

Lifetime Mortgages – The Most Popular Choice

A lifetime mortgage is the most popular way for UK homeowners to release equity. What makes lifetime mortgages distinctive is they don’t require monthly repayments. That’s probably music to your ears if you no longer earn a monthly salary.

Lifetime mortgages are regulated by the Financial Conduct Authority for peace of mind. The equity you release will need to be repaid, plus interest, further down the line. But that won’t be until your home is empty (i.e. when both you and your partner have moved into a care home or passed away) and gets sold.

Competitive equity release interest rates are currently around 2-6%, at the time of writing. You may be able to mitigate the effect of compound interest by making voluntary repayments. Another option to consider is a drawdown lifetime mortgage (which means you access your equity in instalments) rather than a lump sum lifetime mortgage, as interest is generally only charged on the amount of money you’ve accessed so far.

Interest increases the amount you owe. But rest assured that with a reputable equity release plan, your estate will never owe more than the value of your home when it’s sold.

A lifetime mortgage is normally transferable. So if you move home, it can go with you.

‘Impartial, Honest, Fair’ Advice from The Mortgage Shop

Tax-free cash is always welcome, so releasing equity is an attractive prospect. £1.6 billion was unlocked this way in the second quarter of 2022 alone! There’s clearly a lot to think about before signing on the dotted line, though, so it’s vital to get expert advice.

That’s where The Mortgage Shop Devon comes in. We’re Devon’s largest independent regulated mortgage broker and provide an ‘impartial, honest, fair’ service, in the words of one of the many clients we’ve helped. Our advisers include a member of the Equity Release Council, so we’re well placed to assist with lifetime mortgages.

Contact The Mortgage Shop today and discover if equity release could be right for you.

Equity Release Health Warning & Regulatory Statement 

We offer a comprehensive range of Equity Release products from across the market. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured against it. All loans are subject to status. Ask for a personalised illustration. You may be required to pay a broker fee depending upon the type of mortgage recommended. Registered in England and Wales 3110231 – Registered Office: Sommerville House, 30 Southernhay East, Exeter, Devon EX1 1NS. The Mortgage Shop is a trading name of The Mortgage Shop (Exeter) Limited which is authorised and regulated by the Financial Conduct Authority. FRN 302305 Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt, seek independent advice.