Equity Release

Question:

Can I withdraw some money from my house and still live there?

Answer:

Simon Pook, Head of Residential Property at Clarke & Son replies:

In short, you can still live in your house if you were to withdraw some money and there are two schemes which allow you to do so. Equity Release Mortgages allow you to release some of the equity in your home without needing to sell your property or move out. The two schemes available are typically directed at older homeowners, who in most cases are less likely to be able to afford monthly repayments due to a lower income.

The two schemes available are Lifetime Mortgages and Reversion Schemes.

Lifetime Mortgages

Lifetime Mortgages are the more common of the two schemes. This mortgage grants the borrower a lump sum or an income (or both) by the lender but has the benefit of retaining the legal title and all other rights in the property. Instead of monthly payments, this loan is paid back to the lender either when the house is sold, the borrower dies or the borrower goes into care.

As there are no monthly payments there is no continual interest to be paid. Instead the interest is compounded and is payable with the loan when the loan becomes payable. The effect of this is it swiftly increase the amount owed by the borrower.

The most popular of the Lifetime Mortgages is the ‘drawdown’ version. This prevents the borrower from being left with a high rate of interest to pay and can usually save the borrower a great deal of money. Instead of being granted a lump sum out right, a sum of money is taken from the equity and put to one side. The borrower can then draw from the pot as and when they need to. The effect of this is that the borrower will only pay interest on the money actually drawn out rather than on the total lump sum which has been put aside.

Reversion Schemes

The second mortgage scheme is a lot less common. Similar to the Lifetime Mortgage, the borrower is granted a lump sum or a regular income. The disadvantage to this scheme is the borrower must sell a part or the entirety of their home to a company in order to be granted this lump sum or source of income. The borrower retains the right to remain in their home but when the house is eventually sold, the borrower, or their estate will only be entitled to receive the percentage of the property’s value that they still own. For example, if the borrower sells 80% of their home to a company in return for the lump sum, in the event of a sale that borrower will only receive 20% of the total sale proceeds.

Both schemes allow you to remain in your home, however it is important to take independent financial advice from an Equity Release financial advisor prior to entering such a scheme. We can recommend these advisors to you. Having taken guidance, we can advise you on the legal side of the transaction and deal with the providers lawyers on your behalf.

If you have a query or would like to book an appointment please get in touch with our First Contact team on 01256 320555 or email mail@clarkeandson.co.uk.