FAQs

Equity release is a way of releasing some of the equity tied up within the bricks & mortar of your property. After seeing the value of property rise over the decades, people over the age of 55 have built up significant value in their homes. Being able to access & withdraw this equity in the home is the process by which is known as equity release. Equity release schemes come in two formats – Lifetime Mortgages & Home Reversion Plans. To understand the differences please visit Ask Equity Release for further details. Lifetime mortgage plans now account for over 98% of all equity release schemes taken out due to their flexibility & the fact that the majority of people with to retain 100% property’s value.

Equity release in principle is a lifetime mortgage whereby an initial amount of money is released & thereafter attracts interest on a monthly or annual basis, dependent upon the lender. Whether repayments are then made or not will determine how the balance either compounds & grows, or interest repaid and the lifetime mortgage balance remains level. The end of the plan is when the last homeowner has died or moved into long term care. At that point the property is usually sold in order to pay back the lender, with any remaining balance passing to the beneficiaries.

The best time to take out equity release is when the need has become the greatest and all the alternatives have been explored & eliminated. Only then should it be considered. The minimum age is 55, however the longer  release of equity is held off, the less time the equity release has to roll-up & grow. Therefore, by delaying an application, potentially the greater the inheritance that is left for the beneficiaries. This can be negated by paying off the interest as discussed on our interest only advice page.

The biggest argument against releasing equity from your property is the fact that it will erode the inheritance due to any beneficiaries. However, by taking professional equity release advice, this can be minimised by taking up the correct recommendation on which equity release scheme is best for your circumstances. This can be based on the initial amount released, the type of plan & whether repayments are to be made or not.

Equity release is designed to run for the rest of your life & therefore not over the short term. Therefore, should any plan be repaid early there can be early repayment charges applied to the redemption figure which can be upto 25% of the amount outstanding. Therefore, it should only be applied for once all other possibilities of releasing equity have been considered.

Again, before taking a release of equity & by ensuring specialist advice is taken, it can help stop mistakes being taken that could cost in the long run. Take for example means tested state benefits. Should equity release be taken & assessment be found there are more than £10,000 as a consequence, then certain benefits such as pension credit be reduced or even stopped. Therefore, following advice & selecting a lower initial amount via lifetime drawdown plans can mitigate the risks.

Equity release in it’s earliest formats was not always held in high esteem. In fact that has been much bad press regards older equity release schemes in the 1990’s called Shared Appreciation Mortgages (SAM’s) & misguided advice in the past. Therefore, some form of checks & standards needed to be introduced given the nature of the age group taking out these plans & possible frailties involved.

Therefore, government intervention took place & resulted in lifetime mortgages being regulated by the Financial Conduct Authority (previously the FSA) with effect from October 2004 and home reversion plans soon following in April 2007. This laid down the foundations on how equity release schemes would be sold & recompense for homeowners that had been given poor advice by introducing access to the Financial Ombudsman.

Furthermore, the industry also has a trade body which lays down further principles which all equity release advisers should abide by. The Equity Release Council was initially formed in 1991 and was then known as SHIP – Safe Home Income Plans. A code of conduct was established where certain principles of ethics and plan inclusions needed to be adhered to. These would include a no negative equity guarantee, the ability to move home in the future, the option to repay the plan at any time (subject to potential penalty) & the right to remain in the property for life.

The basic criteria for equity release qualification is a minimum age of 55 and homeowner-ship of a property valued at least £60,000. Again, always check lender specifics as each equity release company has their own qualifying criteria, and is where your local interest only lifetime mortgage adviser can assist. By having access to the whole of the equity release marketplace an independent equity release adviser can source the best scheme based on your personal circumstances.

Additionally, lenders will impose standards on the property type they will accept. In the main they do prefer properties that are brick/stone in construction with slate or tiled roofs and predominantly should have an apex, however some lenders will accept a certain portion of flat roof. Equity release providers will order a basic survey/valuation of the property to ensure that it represents good security & that no essential repairs are necessary. The surveyor themselves will provide a property valuation which represents its current market value based on a fairly quick sale.

Equity release schemes do not require any proof of income as invariably there are no monthly payments to make. However, for interest only lifetime mortgage plans & retirement mortgages some proof of income will be required & needs to be supportive of the amount being applied for.This is essential under the new Mortgage Market Review (MMR) rules of lending for mortgagees.

If the property is jointly owned, then any application will need to also be placed into join names. However, should only one party have title to the property & are not married, then it would be possible to have a single application in the name of the sole homeowner. This could be for reasons such as age whereby one partner is under the age of 55. Here advice is essential in order to protect the party not on the deeds and application, particularly in case the other partner dies early.

Equity release schemes should not be taken lightly and it’s important that all alternative forms of lending and possible solutions explored which could save the estate a substantial amount of money at the end of the day. Although equity release is not the product of last resort some people say, there maybe better alternatives which could be more suitable given your position at the time.

As an equity release advisory service, Interest Only Lifetime Mortgage has a concise 8-point guide as to the equity release alternatives:-

1. Apply for any state benefits – this could help increase income by claiming any benefits that you may qualify that you may not have known were available. This could be such common benefits such as pension or savings credit, council tax reduction or even disability benefits.

2. Downsizing to smaller house – by moving to a property of lower in value than the one currently inhabited, it would raise additional cash to the tune of the difference between the two house values. This could solve any financial difficulties, however bear in mind moving costs such as estate agent fees, solicitors & stamp duty would be incurred.

3. Use any available investments – before taking a release of equity, your adviser would conduct a questionnaire to assess you financial status. If there was significant savings or investments in place it would be the advisers duty to suggest these be used before releasing equity. By delaying the start of equity release for  few years by using savings instead would save many £1,000’s in the long run.

4. Asking family for financial assistance – as the children are likely to be the beneficiaries, it would be in there interests to inhibit equity release plans if they are concerned by what inheritance they will get. Therefore, if they raised the money instead it would stave off the need. Additionally, children could assist in paying off the interest off the scheme to halt the increase in the future balance.

5. Obtain a grant for home improvements – dependent upon your level of income, you may be able to claim for financial assistance with things such as lift or cavity wall insulation. So before paying, always check with the local authority if incomes are low and help may be at hand.

6. Reduction in expenditures – if insufficient income is the issue, and equity release is being looked upon to solve any shortfall, then existing expenditures should be analysed. By making cut backs in expenditures such as shopping round for cheaper utilities, reviewing house & car insurance or even shopping habits can go towards bridging the shortfall that exists.

7. Take in a lodger – the governments rent a room scheme can help provide an extra income if let out. Even if not applied for, having a tenant in the house could bring additional funds which could potentially solve any financial shortfall.

8. Consider other types of finance – dependent on disposable income and age, certain financial institutions could still offer standard personal loans, credit cards, HP or even a remortgage.  These will incur additional monthly expenses & due to age may only be available over the short term. If they are an option ensure they will be affordable for the whole term and not just the present, such as retirement where income will fall accordingly.

Equity release schemes can be broken down into two main categories – lifetime mortgages and home reversion plans. From there lifetime mortgage plans can be subdivided into further categories of lending types which explains why the lifetime mortgage is now the most popular format for equity release schemes today.

In fact, lifetime mortgage schemes can be further subdivided into additional categories due to the level of innovation this particular type of equity release scheme has enjoyed. The following are the four different branches of the lifetime mortgage plan: –

1. The Drawdown Lifetime Mortgage

– these schemes work by the lender providing the homeowner with a total cash reserve facility from which an initial lump sum is withdrawn. The monies not taken are left behind in the reserve facility, held by the equity release company & not charged interest whist sat with them. Should the homeowner need further funds anytime in the future they can make a request to the lender advising how much extra cash they require. This can be anywhere from as little as £1,000 upto the remaining funds held in reserve.

With usually no further costs incurred, the lender will ask for some signed paperwork & once returned the requested funds can be in the homeowners bank account within 10-14 days. This drawdown process can continue until the whole cash facility has been utilised. At that point if further funds are required then the application would turn into a additional borrowing & further fees & separate process followed.

The advantage of drawdown lifetime mortgages is the flexibility of taking money as & when required. By only taking what’s required, the homeowner is only charged interest on funds withdrawn which will save on interest over the longer term.

2. The Enhanced Lifetime Mortgage

– based on the principle of a lump sum equity release scheme, enhanced lifetime mortgages use the premise of life expectancy in determining the maximum equity release that can be borrowed. By asking for a health and lifestyle questionnaire to be completed, the lifetime mortgage company will assess the applicants medical records & should there be a history of poor health that could reduce life expectancy, they could increase the maximum amount that can be borrowed.

This would suit individuals who either wish to enjoy the rest of their retirement to the maximum, or those needing the maximum release to clear outstanding mortgages or debts incurred that all need to be repaid. The enhanced lifetime mortgage can also work in the opposite manner in that if the maximum equity release isn’t required, then the interest rate can be reduced. Another benefit proving popular with borrowers.

3. Lump Sum Schemes

– as the title suggests this form of lifetime mortgage is simple in nature as it merely offers a one-stop shop in providing a single tax-free lump sum to the homeowner. There usually isn’t a need for further borrowings & as a consequence this usually results in a lower interest rate. However, additional borrowings can be applied for in the future should the need arise, however additional costs will invariable be applied by the lender.

Interest Only Lifetime Mortgages

– allow the control of the future lifetime mortgage balance by paying off the interest charged each month, thereby rendering the balance level for the duration. Some schemes such as Stonehaven’s Interest Select Lite will permit a premium of anywhere between £25pm, upto the full amount of interest charged. Deciding how much is to be repaid will ultimately determine the future balance of the plan.

By opting to repay the full amount, as stated earlier will pay off the interest charged monthly & keep the balance level, thus preserving any inheritance. However, if a lower monthly payment was selected then an element of roll-up of the balance will occur, albeit less than would otherwise have been should no payments have been made whatsoever.

The maximum amount of equity that can be released is based on a number of factors such as age of the youngest homeowner, the property value and whether any poor health could be considered. Each lender will have its own scale of loan-to-value ratios which will apply based on a certain age. This percentage is then applied to the house valuation to give a maximum lump sum figure.

In practice, the younger an applicant is the less any lender will offer as a cash lump sum. The reason being life expectancy as the younger their age, the longer their potential lifespan. Therefore, it could be dangerous for any equity release company to offer too much, too young as potentially with roll-up schemes the balance could exceed the property value which would prove costly to them as the no negative equity would need to be invoked.

Likewise, should ill-health be stated then following a doctors report the lender can offer an even greater lump some than any standard equity release schemes. The use of an online equity release calculator will assist with any calculations for either a standard lifetime mortgage, enhanced equity release or the interest only lifetime mortgage option on this website.

Equity release set up costs are an important part in any decision making process. Most equity release schemes will have a standard mix of set up costs which can vary significantly between lenders. It is therefore essential the best equity equity release deals are compared using a combination of the interest rate offered by the provider & the mortgage fees charged. The various set up fees charged during application stage are: –

1. Valuation Fee – To ascertain the property value & the consequent amount of home equity that can be released a survey needs to be conducted. This will serve two purposes; a market appraisal based on similar properties that have sold & to ensure the property provides good security for the equity release company. A valuation report is produced following the surveyors analysis of the property. Any valuation fee due is payable upon application and the cost is usually based & relative t0 the valuation figure of the property.
Great Tip! – Always check whether a FREE or subsidised valuation is on offer from the lender

2. Lenders Application Fee – to cover their costs in setting up the equity release plan, lenders will usually charge an application fee which can vary anywhere between £500 upto £995 dependent upon the equity release company. This arrangement fee is either deducted from the release upon completion, or can be added to the loan, which can be useful if the maximum equity release is required. Again do check between lenders as some companies can have a ‘no application fee’ offer at certain times.
Great Tip! – If adding any equity release costs onto a loan it will cost more in interest over the longer term

3. Solicitors Legal Costs –  as part of the Equity Release Council codes of conduct, the lender & the consumer must have separate legal representation. It is always wise to seek a solicitor who is a member of ERSA as they practice equity release legals on a daily basis & many come with fixed solicitors fees. These can start from as little as £375 + VAT & disbursements and starting from January 2014 a face-to-face visit is required to complete the equity release legal process.
Great Tip! – Always get a quote before proceeding & check with your equity release adviser for a recommendation

4. Equity Release Advisers Fee – all equity release companies will only accept an application following receipt of advice from a qualified equity release adviser. This will be to ensure the right plan is being taken for the right reasons & with the correct lender.  To offer best advice an equity release adviser will conduct research from the whole of the market to find the best deal. The cost of this specialist advice will be passed on by the adviser charging an advice fee which is usually payable upon completion of the application. The advice fee can vary anywhere between £500 upto £1495, but we always advise to shop around.
Great Tip! – Never accept upfront application fees & ensure ALL costs are disclosed by the advisers IDD at the outset

A lifetime mortgage plan application usually takes between 6-8 weeks from start to completion, whereas a home reversion plan can take longer due to the greater legal work involved. If time is of the essence then by selecting the right equity release solicitor can make a significant difference in timescales. Also, by having the funds released by BACS or Faster Payments directly into your bank account rather than accepting a bankers draft will result in quicker access to the equity release funds.

Lifetime mortgage interest rates for mortgages in retirement can vary dependent upon the nature of the schemes involved. By this we mean the traditional mortgage way of lending involving verification of income, can offer rates as low as 4.75% (5.10% representative APR). This scheme is the Hodge Retirement Mortgage which will need proof of income under the rules governing affordability and MMR (Mortgage Market Review) which was imposed in April 2014. This offers a 5 year fixed rate deal which can then be renegotiated.

The next rung of the lifetime interest only mortgage interest rate league come the likes of Stonehaven and More2life with their range of Interest Select & Interest Choice plans. These types of interest only lifetime mortgages do offer fixed interest rates for life with monthly repayments starting from 5.94% (6.35% representative APR). Stonehaven do offer a series of tiered equity release interest rates for their Interest Select range which will cater for both the lower end of the loan-to-value range to get the best equity release interest rate, but also upto a higher maximum lending amount for those needing a greater release & prepared to pay a higher interest rate as a consequence.

Finally, we have the voluntary repayment schemes which albeit aren’t set up as interest only mortgage solutions, can be geared towards repayment of the interest and capital if desired. Both Aviva & Hodge Lifetime offer such Flexible equity release plans where upto 10% of the initial capital borrowed can be repaid without any early repayment charges. Rates on the Aviva Flexi plan can be as low as 5.63% (5.83% representative APR) & rise to over 7% dependent upon the amount borrowed against the property valuation.

Therefore, the best interest only lifetime mortgage interest rates are not just the lowest available, but whether the scheme actual fits the requirements of the retiree in repayment method, amount required & their attitude towards future interest rate changes.

Equity release companies will usually ask for information on how you wish to spend your home equity which is usually gathered on the application form. However, the tax free cash from a lifetime mortgage or home reversion can actually be spent on anything you wish. The only insistence a lender can play on how the proceeds are spent is when there is any secured lending on the property such as a mortgage or secured loan.

Additionally, some lenders who do credit checks & ascertain that applicants have CCJ’s or defaults can insist this adverse credit is repaid on completion of the equity release application process. This will usually require a signed undertaking & evidence that the solicitor will pay these off on their behalf. Usually, no equity release lender will allow any other form of secured lending on the property other than theirs.

It is the equity release adviser that should also provide guidance on how the plan should be structured towards the clients requirements. For example, it maybe the case the applicant wants to go for a large release but has no justification for the size of the tax free lump sum. Although its not for the adviser to say they cannot take this amount, it is their responsibility to guide the client towards only taking as much as they initially require. With the availability of drawdown lifetime mortgages, the cash can be taken in stages rather than all at once.

Research on how equity releases are spent show that home improvements tend to be the main spend for the over 55’s, whilst debt consolidation such as mortgage repayment & clearing credit cards runs close behind. Next come the lifestyle changes people want in their lives which can include holidays, new car or caravan and rising in popularity is gifting to the children in helping them onto the property ladder.

When taking a release of equity from your property, which is designed to run for the rest of your life, it is also important to note the roll of how the lender has to fund such a product. Being a lifetime mortgage, they need to acquire these funds at a rate that will be profitable for them over the longer term. This is totally different in concept than a traditional repayment mortgage which may only have a short tie on its rate. However, like a mortgage, there are penalties should an equity release scheme be repaid earlier than originally intended.

The majority of equity release companies use long term investments call Gilts as a barometer to gauge whether any penalty would apply should the equity release loan not run its full term & therefore leave them out of pocket. Lifetime mortgage lenders such as Aviva will measure the yield of a particular gilt from inception of the plan to the date it is repaid early. If the gilt has fallen then an early repayment charge will apply, if it has stayed the same or risen then no penalty will be applied.

There are three types of early repayment charges in the equity release market; gilt based, SWAP rates and the simpler fixed percentage penalty over a set number of years which is currently offered by LV=. However, the issue of early repayment charges has been a thorn in the side of equity release schemes, in that in some instances it has tarnished its reputation with the size of the penalty levied. The maximum penalties that can be levied on current lifetime mortgage schemes can be upto 25% of the amount repaid which can be substantial on larger equity release loans.

Again, the role of your equity release specialist is to ensure your future intentions are noted & the best equity release plan for your situation now, and in the future is recommended. This may not therefore relate to interest rates, but can actually be around the principles of the lenders early repayment charge structure. Remember equity release is designed for the long term.

Equity release schemes have traditional involved no monthly payments and therefore the interest would roll-up and compound, resulting in the balance increasing over time. However, not every retiree wishes for this as it can erode the value of their estate & ultimately the final inheritance of the children. To prevent this happening lifetime mortgage lenders have now developed flexible equity release schemes whereby this interest and even the principle sum can be controlled by way of managed repayments.

There are currently three ways the equity release balance can be controlled; by making monthly mortgage payments of interest only, a capital & repayment basis with some lenders that will offer a pensioner mortgage, or by voluntary repayments which can be upto a maximum level of 10% of the original capital borrowed.

The monthly interest only lifetime mortgage option will repay the interest only & therefore result in a mortgage balance that will remain level for the duration that payments are maintained. However, should lenders provide a capital & interest mortgage for a set number of years, then the repayments will be calculated by the mortgage lender & will reduce the balance to zero of a number of pre-agreed years.

Finally, voluntary repayment plans from Aviva & Hodge Lifetime can offer either of the above two options, by way of the consumer choosing how much they wish to repay. This could be some or all of the interest charged, or even the full 10% permitted which with Aviva’s Lifestyle Flexible Option will allow the full repayment of the scheme over a 16-17 years period.

The golden rule before being able to take out an equity release scheme is that any existing mortgage must be repaid, either before the equity is released, or on simultaneous completion of the equity release application. Therefore, before considering a release of equity, prior knowledge of how much the maximum equity release is possible should be calculated to ensure there is sufficient to clear the mortgage, and if necessary to provide surplus funds if required. This can be done by using any online UK equity release calculators.

Yes, equity release can affect certain state benefits. Therefore, it is essential that before taking any home equity plan out, you receive specialist equity release advice to ensure you know exactly what effect the release could have. Additionally, contacting your local benefits office, citizens advice bureau or local authority would be recommended to confirm.

The reason for seeking benefits advice would be that not only could you check your existing entitlement, you could also ascertain whether there are further benefits you are currently missing out on. If so, this could mean that a release of equity could be delayed or even become a non-requirement as any extra unclaimed benefits could solve the current financial shortfall.

Only means tested benefits can be affected by taking a lifetime mortgage or home reversion plan. Those potentially affected benefits would include pension and savings credit, income support and council tax reduction (formerly council tax benefit). By speaking to a qualified adviser they can ensure that by taking equity release, tailored advice could result in existing benefits not being affected. For example use of the drawdown lifetime mortgage & taking cash in small tranches can keep savings within benefit thresholds.

If benefits are affected by equity release, it would be due to the fact that the savings limits for each benefit has been exceeded which results in a reduction in the benefit payment. For example pension credit in 2014 permits in a maximum savings limit is £10,000. For every £500 of savings over this limit, you would lose £1pw of pension credit. Again, similar principles, but different limits are applied to council tax reduction.

Any cash released via an equity release scheme is classed as a release of capital and therefore not subject to the UK tax regime. However, if the proceeds are placed into a UK bank account or invested into a pension annuity, any income derived could be liable to income tax. In turn any income from such savings or investments could also directly affect means tested benefits such as pension credit or council tax reduction.

One further area where lifetime mortgage & home reversion plans and taxation can intertwine is on the subject of inheritance tax. Taking an equity release mortgage can actually reduce any future inheritance liability by reducing the overall size of the net estate. However, this is not the only method of reducing inheritance tax and always seek specialist advice in the area beforehand.

This will depend on what type of equity release scheme has been taken. For a lifetime mortgage, the homeowner will retain 100% of the ownership of the property as the plan charges interest like any conventional mortgage would. This would be for the complete duration of the plans term.

However, a home reversion scheme works differently. When a partial or full sale of the property is made to the home reversion company, you give up a percentage ownership of the property. This could mean the complete sale of the property which would result in the home reversion company owning 100% of the dwelling. Nevertheless, you would still retain the right to continue living there for the rest of your life due to a lifetime tenancy agreement being created between both parties.

However, upon death or the last person moving into long term care the ownership of the property must be changed. For a lifetime mortgage, most lenders will grant a 12 month window before which time the equity release loan must be repaid. The beneficiaries can at that point either sell the property to repay the equity release company, or repay the loan using their own funds, resulting in them taking full ownership of the property.

Currently, all equity release providers are members of the Equity Release Council (formerly SHIP) and thus must abide by their six codes of conduct. One of these codes states that the homeowner can live in their property for the rest of their life, so long as it remains their main residence.

This will depend on the type of equity release plan. With a roll-up lifetime mortgage the nature of the scheme will result in the balance increasing over time, as interest compounds. Therefore, the net equity remaining will reduce & theoretically could erode all the beneficiaries inheritance. However, even if the balance exceeds the value of the property at death, or on moving into long term care, the no negative equity guarantee kicks in which will ensure the beneficiaries can never end up owing more than the value of the house.

However, this does not guarantee any equity will be passed onto the heirs, only that they will incur no debt. Therefore, by repaying some or all of the interest will ensure the restriction of the compounding effect of the balance. This can therefore help maintain a level equity release balance. Keeping the balance level & hopefully the property value either remaining level or hopefully increasing in the future, will ensure the beneficiaries will receive some inheritance.

Another way that lifetime mortgage plans can secure the equity in the property is by the inclusion of a protected equity guarantee which certain lifetime mortgage companies now provide. This protected equity guarantee needs to included from the outset of the plan by stating how much of the property value you wish to retain at the end of the day. This can restrict the size of the initial release as the lender needs to cover the guarantee at the end of the day.

Finally, home reversion plans truly guarantee an inheritance by the nature of the scheme. By selling a percentage of the property to the reversion company will ensure that the unsold portion will always remain theirs & ultimately their beneficiaries. Therefore, if 40% of the property was sold to raise a lump sum, the remaining 60% would be guaranteed to be passed to the heirs to the property.

With any lifetime mortgage or home reversion scheme that are members of the Equity Release Council, there is no possibility of being forced out of your home as a consequence of getting into arrears with any payments. The reason for this is down to the fact that roll-up equity release plans do not require any form of repayment and the monthly interest only lifetime mortgages can be converted to roll-up at any point.

However, certain pensioner mortgages that may be building society based, or the Hodge Retirement Mortgage can result in arrears if payments are missed with subsequent repossession ensuing. It is therefore essential that full details of ay proposed recommendation is explained fully including possible consequences such as repossession.

Following death of the last surviving partner, the equity release scheme will need to be repaid within a certain timescale dependent upon the lender. This is usually 12 months following death of the homeowner. The decision by the beneficiaries then is to determine how the equity release scheme is to be repaid. More often than not, this will be via the sale of the property which will clear the original loan, plus any accumulation of interest.

However, beneficiaries can chose to retain the property for themselves, for example as an investment for rental purposes, then they will need to raise the capital themselves to clear the equity release balance. If it was for investment purposes then a applying for a buy-to-let mortgage could effectively solve this problem or if they have sufficient savings funds already. In taking either route, the property will then be transferred into the beneficiaries name.

Following death or the last surviving partner moving into care, most equity release companies are prepared to wait upto 12 months for the loan to be repaid. This will give time to the executors of the estate to obtain the best price possible for the residence. There are some lifetime mortgage providers who will only wait 6 months, so again always check with your independent equity release adviser before proceeding.

The Equity Release Council (ERC) is the new trade body for the equity release industry which has incorporated the codes of conduct formerly laid down by SHIP (Safe Home Income Plans). The ERC has set the standards that all members of the equity release industry should abide by in providing a professional & ethical advisory service. Members of the Equity release Council has now been extended to include not only the providers, but also advisers & brokers and members of the legal profession involved in equity release transactions.

The standards involved are the six code of conduct rules which ALL lifetime mortgage & home reversion companies must offer in their schemes. Additionally, their seven statement of principles lay down the ethical nature of equity release should be handled with potential customers. They also offer a consumer information library which provides generic information on how equity release schemes work. Finally, they now have a member directory which helps you find an equity release adviser in your area that is a member of the council.

A no negative equity guarantee is a safeguard for consumers taking out lifetime mortgages. This feature provide future protection for their beneficiaries which could result from their actions by taking out an equity release scheme. For example taking out a maximum roll-up lifetime mortgage at a young age could result in the balance n the future eventually matching and exceeding the value of the home.

Upon death of the homeowner or them moving into long term care, the no negative equity guarantee will kick in & will prevent the lender ever taking more from the beneficiaries, than the home is worth. This guarantee is free in the sense there is no fixed charge, however it is costed into the lenders interest rate & therefore paid this way.

All lenders have a certain loan-to-value ratios which have been actuarily calculated to take into account potential house price inflation compared to the funds released on a age basis. However, certain future criteria is still out of their control, one of which is house prices. Should house prices fall over the years, thus exposing the balance of the equity release, the no negative equity guarantee is likely to be involved.

There are no scripted rules as to how the equity release mortgage must be repaid following the death of the last surviving homeowner. Lenders do provide flexibility in this department by most offering a 12 month grace period during which the beneficiaries can decide on how to repay the equity release mortgage. This is usually via the sale of the property, however it could be from their own source of funds.

The reason for this could be that they wish for the property to be transferred into their own name & either move into the property themselves or rent the property out for income purposes. Therefore, the choice is theirs, however complications could arise should there be more than one beneficiary as all parties need to be in agreement with this action and that they still receive their share of the estate as designated in the deceased’s Last Will & Testament.

Indeed as long as the qualifying criteria of the equity release scheme can be met which is a minimum age of 55 & the loan can be raised based on this property value and the age of the youngest applicant. In such circumstances, equity release can be used in the same way as any conventional mortgage is used towards a house purchase. The process of application is the same as valuation, solicitor and lender are all required.

Effectively, a mortgage being used towards a house purchase bridges the deficit between the purchase price & the deposit being put down. Equity release can be used in exactly the same way. By knowing the shortfall required, the equity release scheme can be applied for & set to complete on the date the ownership of the property is transferred to the new homeowner. This is the same principle as any standard mortgage either before or in retirement.

Sale & rent backs are similar in nature to home reversion schemes, however initially they came without the protection afforded by the Financial Conduct Authority and have no codes of conduct as laid down by the Equity Release Council. In essence they work by the homeowner selling their property at a discount and then continue living there for a fixed term whilst paying a rent. However, this rent is not guaranteed & can be amended in the future. Also, whereas home reversions offer a lifetime tenancy, sale and rent back schemes do not offer such guarantees.

The concerns with sale and rent backs is that you no longer own your home, which is the same as any home reversion scheme where 100% of the property is sold. However, after the fixed term agreement has expired the rent can go up, or worse still you could be asked to leave the property which cannot happen with home reversion plans. They should be only considered as a last resort and should always be discussed with a financial adviser before pursuing such a extreme course of action.

All equity release companies offering lifetime mortgage schemes & home reversions are members of the Equity Release Council and as such are privy to the FSCS compensation scheme. Additionally, should a lender ever cease providing equity release loans their mortgage book is sold onto another lender who will then maintain its administration. The terms of the original contract must be maintained upon transfer, unless the original terms dictate they can be changed. Therefore, interest rate, drawdown facility etc will still be present moving forward.

Such instances of this occurring have been when the credit crunch hit & lenders such as Northern Rock ceased lending completely. In Northern Rocks situation their mortgage book was then taken over by Papilio UK Equity Release who now administer these legacy schemes. Therefore, in all circumstances you as the mortgagee will remain unaltered & the equity release terms & conditions of the original agreement will remain in situ. Only the contact details and the new administration company will change.