We know that life in the Spanish sunshine is healthier, that property there looks to be a good investment right now and that holiday home ownership is unaffected by Brexit. But what if you need a few more funds to buy a home in Spain? The good news is that for UK homeowners aged 55 and over, equity release offers a route to buying easily and quickly, using your own assets. Our equity release partner Responsible Life explains….
As you are approaching (or perhaps already in) retirement, you might consider buying a property abroad. If you don’t quite have the available cash, there is the potential option of you using the wealth within your property. Increasing numbers of over-55 homeowners have started to utilise the option of releasing equity from their home, as a tax-free cash lump sum. All this without needing to sell up or downsize.
If you release equity, you will remain the sole owner of your home whilst being guaranteed the right to remain there for your life or until you require permanent long-term care.
As you can only release equity from your main residence – meaning you must reside there for at least 6 months of the year – releasing equity is not suitable for those who are looking to move abroad. Instead, if you are looking for a holiday home, perhaps to provide you with somewhere hot and sunny to spend your Winter months, it is a perfect financial tool to use.
You could also use your holiday home to create the perfect living legacy for your loved ones. Instead of leaving an inheritance to be enjoyed once you have passed away, why not take them with you on once-in-a-lifetime holidays? You can even leave them the home to enjoy long after you have passed on.
How does it work?
Firstly, you should understand exactly what equity is. The equity in your home is the difference between its value and the balance of any loans secured against it. For many, this wealth tied up in the bricks-and-mortar of the home represents their most significant financial asset. But this money often sits there unused, its potential being wasted.
When you release equity, you can stay in your home for the remainder of your life and use your tax-free cash how you wish
Many people in this situation might have considered downsizing in order to access their equity. However, after the associated costs of moving home – including estate agency fees, stamp duty, removal costs – your available equity is getting smaller and smaller. That is on top of the stress and emotional impact of leaving the family home, where all your beloved memories have been made.
When you release equity, you can stay in your home for the remainder of your life and use your tax-free cash how you wish. You can also choose different ways to access your cash.
A Lifetime Mortgage
A Lifetime Mortgage is the UK’s favourite way to release equity from their home. When you release equity in this way there will be no required monthly payments and you will remain the sole owner of your home. As Lifetime Mortgages have increased in popularity, so too has their flexibility. There are three main types:
Roll-Up Lifetime Mortgage
A Roll-Up Lifetime Mortgage allows you to release a tax-free cash lump sum from your home. The interest is added to the loan monthly and builds up over time. The total loan, plus interest, is not due for repayment until you have either passed away or entered permanent long-term care. It is usually then repaid with the sale of the home, although you can choose for it to be repaid through other means if available to your estate.
Drawdown Lifetime Mortgage
If you opt for a Drawdown Lifetime Mortgage, you can release an initial lump sum and create a further reserve of equity to access at a later date. This reserve is interest-free until accessed, allowing you to better control how the loan amount increases. For purposes of buying a holiday home, a drawdown is not often used due to the lower initial lump sums usually taken, but it is useful for you to be aware of your options.
Flexible Lifetime Mortgages
A Flexible Lifetime Mortgage again allows you to release a lump sum from your home. With this however, you can make optional payments of up to 10% of the initial loan value each year. These payments are completely voluntary and can be stopped at any time, without penalty. As releasing equity has the potential to affect the value of your estate and your entitlement to means-tested state benefits, Flexible Lifetime Mortgages can be invaluable.
But how do you go about using a Lifetime Mortgage to release equity from your home?
What are the criteria?
To qualify for equity release, you will usually need to meet the following:
- You must be aged 55 or over
- Your home must be worth at least £70,000
- The home in question must be your main residence and lived in by you for at least 6 months of the year
- You must own the home from which you are releasing equity
The amount that you can release is determined by the age of the youngest homeowner and the value of the property. The minimum loan is usually £10,000. You must also consider whether the construction of your home could be considered unusual to a lender.
Contrary to what some might believe, you do not have to be mortgage free to release equity
Contrary to what some might believe, you do not have to be mortgage free to release equity, as long as you clear your existing mortgage on completion of the equity release. Many people actually use their tax-free sum to do this.
But isn’t equity release unsafe?
There are many myths that surround equity release due a lasting reputation from the 1990s when plans were often mis-sold. Responsible Equity Release takes pride in educating customers on the many regulations and safeguards that mean Lifetime Mortgages are now safer than ever before. Here we will address some of the most persistent myths and explain the truth.
Will you owe more than the value of your home?
A common concern is that, as there are no required payments, the interest will cause the loan to increase beyond the value of your home. At Responsible Equity Release however, we will only recommend lenders who are Equity Release Council-approved. Your Lifetime Mortgage will then come with a no-negative-equity guarantee as standard, ensuring that you will never owe more than the value of your home. There is then no risk of your loved ones inheriting any Lifetime Mortgage debt.
Can you move home in the future?
A Lifetime Mortgage does not require you to remain in the same home for the rest of your life. Another benefit of Equity Release Council-approved lenders is that you can port the mortgage to a new home, provided that the new home meets the lender’s criteria.
How do you begin?
Responsible Equity Release has a convenient and easy to use online calculator, which can work out how much is available to you based on your age and estimated home value. We can also send a free guide to releasing equity to you in the post.
You could also book a free no-obligation home visit with one of nationwide financial advisers, ensuring you will speak to somebody who is local to you. They will be able to discuss equity release in further detail and help you to decide if it is right for you. There will be absolutely no charge for this service unless you choose to proceed and accept our Lifetime Mortgage recommendation.
When can you start looking for your dream holiday home?
Once you have started the equity release process, the lender will arrange an independent valuation of the property and issue an offer if it meets their criteria. After this stage, once you have met with a solicitor and signed all the appropriate documents, you could receive your cash in just a few weeks!
Responsible Equity Release is a trading style of Responsible Life Limited. Only if your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.