Best Equity Release Schemes

When you have discovered that you are eligible for equity release and you would like to release money from your property, the next step is to consider which specific scheme would be the most suitable for you and your family.

With so many plans available, this is not an easy decision. Should you prioritise interest rates, loan amounts, tax, or something else?

This article will encourage you to consider the most important aspects of each plan, and to come to a conclusion on your own about which one is ideal for you.

If you are still unsure, please get in touch with us and we will be able to provide you with a personalised quote as well as advising you on the best plan for you.

Ultimately, as much as we support equity release, the most important thing for us is that you unlock your money in a safe way that you are not going to regret.

How to Find the Right Lender For You

Finding the right lender requires plenty of research, as you need to compare the offers provided by each one.

If you need help making this decision, we are more than happy to point you in the direction of some reliable lenders who have helped our clients in the past.

You can see some of these equity release providers right here on our website, including LV, More2Life, and Hodge Lifetime.

In terms of things you need to consider when finding a lender, perhaps the most important is how much they will charge for an advice fee, and how they go about getting this money from you.

Some companies add the fee to the loan so you will never directly pay it, whereas others expect upfront payment.

For example, One Family requests an upfront payment of £950 once the equity release application has been finalised (1).

This is better for some people as they don’t want to have the burden of owing extra money.

However, others are not in the position to pay such a large amount in one go, so they choose to have it added to their loan.

Another thing to keep in mind is that your lender must be regulated, otherwise you are vulnerable to being scammed.

Make sure you choose a provider that is affiliated with the Equity Release Council (ERC) (2).

You should also ensure they are regulated by the FCA as this will be useful if any financial issues complicate the equity release process (3).

What are My Choices When it Comes to Equity Release Plans?

Let’s start with the basics. There are two types of equity release plan that you can get involved with.

The first is a lifetime mortgage, and the second is a home reversion. However, there are many varieties of lifetime mortgage, so your options are varied.

Home reversion schemes are less popular, but they are still rising in popularity as equity release is becoming a favourable option for people in their later years.

With this scheme, you sell your property (or a share of it) to a provider and receive a lump sum of tax-free cash to spend on whatever you would like.

Lifetime mortgages are similar to traditional mortgages in the sense that you receive a loan to cover the cost of your house, but with this type of mortgage, the loan does not have to be repaid until you pass away or move into long-term care.

In the meantime, you receive either monthly payments or a lump sum payment.

If you are interested in lifetime mortgage plans, please have a look at all the different lifetime mortgage plans you could have, that are all listed on our website.

The possible plans are: interest-only, income, buy-to-let, drawdown, lump sum, voluntary repayment, second/holiday home, and enhanced/ill-health.

Thanks to the popularity of lifetime mortgage products, no matter where you live in the UK (and even in some other areas of the world), you have access to a range of wonderful lifetime mortgage lenders and lifetime mortgage specialists.

If you would like to know your options in the area you currently live in, please see the list of areas we work in our website.

What is the Most Common Equity Release Scheme?

The most popular type of equity release plan is a lifetime mortgage. It allows the equity release consumer to remain the homeowner, which is appealing for many people.

It also gives you the option to receive regular payments, which is great if you are using your equity release funds for something like paying bills or topping up your savings each month.

There are many options when it comes to how you would like to approach equity release with a lifetime mortgage, including whether you would like to repay early, whether you would like to implement inheritance protection, and whether you would prefer a lump sum or regular instalments.

In terms of the disadvantages of a lifetime mortgage over a home reversion, you will have to pay more interest unless the money is offered as a lump sum.

Though this is not your burden to carry, it does mean your beneficiaries will receive less money in the end as the proceeds of your house sale will have to cover the cost of the loan as well as the accrued interest.

Are There Any Equity Release Schemes You Wouldn’t Recommend?

We believe each of the equity release schemes is suitable for someone, so we wouldn’t advise against any of them.

However, we say this without knowing your situation, so it is likely that we would dissuade you from selecting certain schemes if we knew your personal details.

For example, we are never going to recommend a second home scheme to someone who wants to use their loan to pay for a family holiday, as this would simply not work and would go against the rules of the equity release plan.

If your family are already stressed out and busy with their own lives, a lifetime mortgage may be the better option for when you eventually pass away or go into care.

This is because with a home reversion, the home needs to be vacated in around a month or even a couple of weeks.

This puts a huge amount of stress on the family as they have to organise their loved ones’ possessions immediately after their death, which is already a difficult time.

1. Interest Rates and Equity Release Schemes

Depending on which equity release plan you opt for, the interest rate will vary. Sometimes, there is a fixed interest rate that never waivers (such as with a buy-to-let plan), and other times, the rate of interest is advertised as being variable.

We cannot state once and for all which plan has the highest interest rate, as it depends on your personal factors and the lender you are with. However, here is a general idea.

Plans with higher mortgage interest rates include the enhanced plan and the drawdown plan. Having said that, with an enhanced plan, you could be eligible for reduced interest rates if you can prove that you are in poor health.

With a drawdown plan, there are ways to get around the high rate of interest i.e. you could withdraw money a bit at a time so that interest is not charged on the entire loan.

On the other hand, the voluntary repayment and interest-only plans are known for their low-interest rates, as you are consistently paying back some of the loan, so less interest is accrued over time.

The effect of this is dependent on how much you are repaying, as the more you repay, the less interest you will owe overall.

A tip for potential consumers who would like low-interest rates is to look for plans that are very popular and widely available.

For example, the lump sum lifetime mortgage is known for its low-interest rates.

2. Inheritance and Equity Release Schemes

If you have taken out a lifetime mortgage, there are fewer options available to you when it comes to leaving an inheritance to your family.

However, if this is a must for you, let your adviser know and they will look for a plan that includes inheritance protection.

Home reversion schemes are more open to inheritance protection as you can easily save a share of your property for your loved ones. Again, you would need to make this clear to the adviser.

Despite being able to implement inheritance protection, you must be aware that equity release does impact inheritance, as you will be using up some of the funds that would ordinarily be passed on when you die.

Some people are comfortable with this idea as they need the money and they do not see the point of struggling in their later years when they have so much value in their assets.

Perhaps they are not close to their family, so this decision is made easier as they do not feel any desire or pressure to leave money to anyone.

However, others are incredibly guilt-ridden about leaving their family with less money, and in this case, we would encourage them to consider equity release carefully and explore their inheritance protection options before signing off on anything.

One positive when it comes to equity release is that it can guard your family from inheritance tax, as equity release funds are not subject to inheritance tax.

Even if you gift your family money while you are still alive, this lump sum will not be taxed for seven years.

3. Tax and Equity Release Schemes

One great thing about equity release is that the money you receive will be completely tax-free. This is true for both lifetime mortgages and home reversion schemes.

This is something that appeals to people who are fed up of the amount they are being taxed on regular loans and on their income from work.

4. Age and Equity Release Schemes

If you would like to take out a lifetime mortgage, no matter the specific plan, you must be at least 55 years old. Generally, the older you are, the more benefits you could be entitled to.

As for a home reversion, the minimum age is significantly higher at 65 years old. However, it’s never too early to start researching if this is something you are interested in for the future.

The reason you cannot release equity at a younger age is that this scheme is aimed at people who have worked hard to earn valuable assets and yet do not have the money necessary to enjoy their later years.

What’s more, many young people would not own a house that was eligible for equity release, given the poor condition of the property market at the minute.

On the other hand, elderly people were able to purchase property when it was more affordable.

What If I Don’t Want to Release Equity But I Need the Money?

If you are looking for a way to receive more financial aid in retirement but equity release does not appeal to you, you are not at a dead end. Here are some things you could consider:

1. Taking Out an Unsecured Loan

When you take out an unsecured loan, instead of your assets being considered, your credit rating is taken into account. If you are eligible, you could be granted a loan that usually has a high-interest rate.

This is ideal for people who need money quickly but are confident that they will also be able to pay it back quickly.

2. Borrowing From Your Loved Ones

If you are lucky enough to have loved ones who are able and willing to help you out, you could ask them for help before committing to a scheme.

However, we are aware that this isn’t possible for many people. Some people do not have family or friends that would feel comfortable lending them money, or maybe they do not know anyone who would be in the position to do this.

3. Getting a Retirement Mortgage

Another option is to take out a retirement mortgage. With an equity release mortgage, the debt is rolled up and owed at the end of the scheme, so repayment is never necessary.

In fact, doing this can lead to repayment charges. If you take out a loan with Aviva, you could be paying as much as 25% of your loan if you want to repay the loan (4).

However, with a retirement mortgage, you pay back some of the loan each month and this reduces the overall amount you owe, which in turn reduces the compound interest owed.

You can even get a retirement interest-only mortgage if you only want to repay some of the interest.

Tips For Choosing the Best Equity Release Plan

Firstly, lean on an unbiased adviser to guide you through the process of selecting a plan as you do not want to be pushed to choose one that will be detrimental to you and your family.

You can get free equity release advice from many places including charities, independent advisers, and even right here on this website.

Secondly, don’t just consider your current circumstances, but also think about what you would like out of equity release in the future.

Do you see yourself wanting to rent out a property? If so, there is no point settling for any scheme other than a buy-to-let scheme.

Finally, make sure you have considered your loved ones’ opinions too. This does not mean you have to agree with them, but it’s a good idea to ask for different opinions to ensure you aren’t jumping into a decision that you may regret.

What to Avoid When Selecting a Plan

There are certain things that will set you back when selecting a plan, and we want to make sure you don’t fall into these traps.

One tip is to avoid settling on the first plan you see, as it is easy to be swept up in the appeal of equity release, but you really need to sit down and consider your different options before making any commitments.

You should also avoid plans without a no negative equity guarantee. If you do not have this guarantee in place, you may end up owing more than the amount you initially borrowed, which will take money away from your beneficiaries when you pass away or move into long-term care.

Finally, do not go for a scheme that your equity release adviser has deemed unhelpful.

They know what they are talking about, and though you may be tempted to ignore them, they are there to help you get a successful application so you need to listen to them.

Of course, this only applies if you have selected an equity release adviser that is prestigious and will always keep your best interests at heart.

We encourage you to reach out to different people and firms before you settle on one adviser to ensure you benefit from neutral advice.

Scenarios For Finding the Best Equity Release Plan

As different plans are tailored to different people, we wanted to give you an idea of the plans we would recommend in a couple of potential scenarios.

Remember that we would ordinarily need more information to make a decision, so take the following recommendations with a pinch of salt (and call us for a professional opinion from an equity release specialist).

1. You want to avoid interest at all costs

If you are not prepared to pay interest on your loan, we would strongly recommend a home reversion.

If you opt for a home reversion plan, you will receive your loan in one go as a tax-free lump sum of cash. This means you will not be charged any interest.

To keep your interest to a minimum, you could go for an interest-only scheme and repay some or all of the interest each month, which would mean you would owe less interest at the end of the scheme.

2. You are struggling with your health

The enhanced/ill-health plan is specifically designed for people who are in poor health, as it allows these people to access extra help including higher loans and lower interest rates.

It could also be a great idea to use your equity release loan to purchase things that will help you to live more comfortably, so consider home improvements that make your house more accessible.

3. You want consistent loan payments

If you do not want to receive all of your loan at once, and you would prefer to rely on consistent instalments, the best option is probably an income lifetime mortgage.

With this arrangement, a fixed income would be transferred to your bank each month.

There is also a drawdown lifetime mortgage, which offers the best of both worlds as you get an initial lump sum and then subsequent payments, which is helpful if you are unsure which way is best for you.

I Have Been Rejected From One Equity Release Plan – Can I Try Another?

If you have sought the help of an equity release adviser, you shouldn’t be in this situation as they should not have helped you to apply for a plan that you are not eligible for.

However, this does happen from time to time, and we want to assure you that you can still apply for a different plan.

This evidently adds time to the equity release process, but the application should be finalised in around 6-8 weeks.

Can Equity Release Warehouse Tell Me How Much Money I Could Release From My Property?

Yes, we can certainly give you a quote of how much cash you could access from your property if you send us some personal details.

We also have an equity release calculator that gives you a more general idea of the money you could release, but you do not fill in all of your personal information. Instead, you simply input your age, the value of your property, and the type of property you own.

If you are interested in the free consultation that we offer, ring us on 0330 058 1579 or request a callback and we will be in touch as soon as we can. As long as you are eligible for equity release, we can help you.

Some of our customers want to call and discuss alternatives to equity release before they make any serious decisions, and we encourage this. It’s important to consider the disadvantages before you rush into anything.

Though we have given you a general idea of the alternatives, we can discuss these in more detail over the phone and help you decide whether one of these options would benefit you more than equity release.

Contact us today and save yourself the headache of finding another reputable firm. We are highly experienced in all things equity release, and we are ready to help.

References

[1] Best Equity Release Companies https://www.thetimes.co.uk/money-mentor/article/best-equity-release-companies/

[2] Equity Release Council https://www.equityreleasecouncil.com/

[3] Financial Conduct Authority https://www.fca.org.uk/

[4] Best Equity Release Companies https://www.thetimes.co.uk/money-mentor/article/best-equity-release-companies/