What is the cost of setting up an equity release plan?
Under the terms of your Lifetime Mortgage, the rate of interest that will be charged on your loan will either be fixed, or it will be variable, in which case there will be a “cap” (upper limit) on the amount that can be charged at any time. If the rate is fixed, it will be fixed each time you withdraw funds from your plan. Over time, therefore, you could have several amounts of money which you have released at different times, and each would be subject to a different fixed rate of interest, which would then be added to the total amount which you have borrowed. You will not have to pay back any of this money until your plan comes to an end and your property is sold or you choose to repay the loan.
At the time you take out the plan you may be asked to pay a number of other fees to cover the costs of setting up the plan. They will include fees payable to:
- The Provider which is financing your plan. These may be described as “application” or “administration” fees;
- Your Adviser, who will carry out detailed research into the options and recommend the most suitable plan from the range available, followed with a written report containing recommendations and a personalised Key Facts Illustration (KFI). Should you wish to proceed, your adviser will arrange all of the required paperwork with the provider and handle things through to eventual completion and release of the funds;
- Your Solicitor, for giving you independent advice on the plan to help you understand how it will work, and for carrying out the necessary conveyancing (legal) work; and
- The surveyor (valuer) who will inspect your property in order to give the provider an independent estimate of its value at the time you take out the plan.
- Some firms may not charge fees in all of these categories and others may structure their plans so that they offer cash-backs in order to balance the cost for you. You will need to research the market thoroughly to ensure that you find an option which suits you.
Is there a minimum value for properties on which equity release is available?
Yes: providers will generally not accept properties which are valued at less than £70,000.
How much can I borrow?
The provider will instruct a surveyor to give a professional valuation of your property that would define the amount that could be released. How much can be released is also dependent on your age and that of your partner (if you are making a joint application) and the value of your property. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’, ie smoking habit.
How long will it take to access the funds?
Timescales will vary from provider to provider. However, it usually takes 8-12 weeks from the day your application is received by the provider to the day your money is received by your solicitor.
If I take out an equity release plan, will I be able to move to another property?
Yes: equity release plans which comply with our full product standards give you the right to move to a “suitable alternative property”. This means a property which your provider would accept if it were setting up a plan for a new customer.
There are some properties which providers would not be able to accept – and this is usually because there would be restrictions on their ability to sell the property in the open market when your plan comes to an end. So, for instance, homes which are built in retirement complexes are not generally acceptable, because the provider would not be able to sell them in the open market.
There may be other restrictions on the types of property that will be acceptable to providers – such as the type of construction.
What happens if I have an equity release plan, and need to move into long-term care?
Your equity release plan is designed to enable you to stay living in your home until you either die, or become unable to continue living there. If you need to move into long-term care, and don’t have a spouse or partner who is still entitled to live in the property, it will be sold and the amount you borrowed, plus interest, will be paid back to your equity release provider.
In these circumstances you will not have to pay any Early Repayment Charges, which can sometimes be payable if you decide to re-arrange your plan with another provider. Your equity release contract will explain how much time will be allowed for you or those acting on your behalf to sell your property. The time allowed is typically between 6 months and 1 year.
You might find that you wish to move in with a member of your family, as an alternative to going to live in a nursing home. Obviously this will depend on what sort of support and care you might need at that stage, and what options are open to you. You should check carefully how your proposed equity release provider would respond in this situation as some will only allow you to move in with a relative if your medical needs require this. Others may not be so specific. If you think it might become a relevant issue at some point in the future, make sure you ask the question and get a clear answer.
If the property is being sold after your death, your beneficiaries/executors of your Will will be in charge of selling the property on the open market – that is, via an Estate Agent, so that it is sold for what is known as its “market value.”
If you are still alive when the property is sold, you may have appointed an Attorney to handle your affairs, in which case he or she can arrange the sale. If not, most equity release providers include a very specific Power of Attorney in their contract terms and conditions, which allows them to take over a sale if progress is not being made by the borrower or his/her personal representatives (who may also be executors if the borrower has died). This power is completely standard in ALL residential mortgages and is not peculiar to equity release: in effect it makes sure that the provider/lender is able to sell your property and recover the debt owed to it.
You or your estate will be responsible for paying all the costs of the sale, including solicitors’ fees. Some providers may also charge an administration fee for removing their charge against the property, which is registered at the Land Registry.
Home reversion plans and lifetime mortgages are complex products. To understand the features and risks, ask for a personalised illustration. Your home may be repossessed if you do not keep up repayments on your mortgage. A lifetime mortgage is a loan secured against your home. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits. The levels, bases and reliefs from taxation are subject to individual circumstances.
