Unlocking the cash in yourhome The Complete Guide Written by Radio Times financial journalist Paul Lewis
2 4 Safe and convenient 5 What to do with it 6 Types of equity release plans 10 Does my home qualify? Will it affect my benefits? 11 How much can I release? 12 What will it cost? 13 Protecting loved ones 14 Alternatives to equity release 17 Next steps Contents Paul Lewis is a freelance financial journalist who presents Radio 4’s Money Box, appears often on other BBC radio and TV programmes and writes for various publications including Radio Times.
If youare over 55 and own your home, there will normally be a great deal of money tied up in it which you can release if you want to Unlocking the cash in your home | The Complete Guide | e | The Complete Guide | e | The Complete Guide | e | The Complete Guide | e | The Complete Guide | 3 The information in this guide is correct at September 2023 but tax and benefit rules, interest rates and product features change frequently. Neither Paul Lewis nor Age Partnership Limited accept any liability for decisions taken on the sole basis of this information. In the last twenty years average house prices have more than doubled in the UK. That is one reason why over the last decade the number of people unlocking some of that value to make their lives better has increased dramatically. You can do it using what is called an equity release plan. That simply means taking some of the value, or equity, in your home and turning it into money you can spend. More and more people are finding that equity release is the answer to having less money than they need or would like to have even though they live in a very valuable home. It can help them have a better retirement. Last year it was a choice that almost 50,000 people made releasing an average of almost £126,000 each.
Safe and convenient Nowadays the dangers of equity release plans have been all but eliminated as long as you deal with a member of the Equity Release Council. Although your debt may exceed the value of your home you or your heirs will never be expected to pay back more than that value. This is called the ‘no negative equity’ guarantee and is made by the firms that belong to the Equity Release Council. Check with your adviser about the exact conditions and any potential risks of the plan you choose. Equity release will not stop you from moving home later if you want to although there may be conditions on doing that. The home you move to must also be suitable for equity release (see p.10). If it is not you will have to redeem your plan early and there will be a penalty charge. You can take out a plan even if you have 4 an outstanding mortgage – including an interest only mortgage – as long as you pay it off using some or all of the money you release. A major decision Taking out a plan is a major decision and you should only do it after careful thought and taking independent specialist equity release advice. There will be fees to pay and there may be alternatives. It’s a good idea to talk to your family. This booklet guides you through the choices – explaining how the plans work and answering some frequently asked questions. It provides you with a useful checklist of questions to ask your adviser, but it is not enough by itself to make a decision. Before you consider equity release you must take personal advice from a qualified and regulated financial adviser. Only ever use an independent financial adviser who can look at the whole of the market.
Whatto do with it Unlocking the cash in your home | The Complete Guide | 5 Your home Home or garden improvements are one of the most popular uses. Wouldn’t it be nice to have a modern kitchen to make your life easier? A new boiler or heating system can make life so much more pleasant – and save you money. Or is the garden in need of a makeover that takes account of your changing ability to bend and dig – or the freedom to sit in the sun? Interest only mortgages This year a number of interest only mortgages will reach the end of their term and have to be paid off. Your lender may have ways to help. But just over one in four who take out equity release use it to pay off a mortgage. So it could help you find a solution. Debts Paying off existing debts can be very liberating. More people are reaching retirement age with personal debt such as credit cards or loans. Others may find early retirement is a time when debt grows as they adjust to a lower income. Paying off those debts can bring great peace of mind. Though remember that you are not getting rid of the debt but exchanging it for a more manageable one. Paying for care If you want to stay in your own home but need to pay for someone to come and give you help at home, then equity release can be an ideal way to raise the money to do that. Not just for you You can also use the money to help your children. Think of it as an advance on their inheritance! Perhaps they are struggling to find a deposit for a home? The bigger the deposit the cheaper their mortgage will be so that is a good investment in their future. Unlike leaving money in your will, you can see the good your gift does. Of course there will be less value in your home - and possibly nothing - for them to inherit. In the first half of 2023, one in nine of those who took out equity release gave some of it away. Maybe they have debts you would like to pay off for them. But let me put in a word of warning. Make sure they know this is a one off. Paying off someone else’s debts once is fine. After that it is probably not a good idea. It can become a habit. And if there are grandchildren more money is always needed. Perhaps for an extension to give them more space? Just for fun Of course, many people spend at least some of their equity release money on fun. Why not? You worked hard for it. Maybe you want to buy a new car or a caravan. Or spend a bit more on a holiday – in the UK or elsewhere. These are not trivial uses. Never feel guilty about spending the money you release. It can give you genuine freedom and new opportunities in your retirement. Of course, you should never borrow more than you need – or want – to spend.
Types of equity release plans Lifetime mortgage A lifetime mortgage is the most popular and flexible type of equity release product. You borrow money secured against the value of your home. The big difference is that for most plans there are no monthly payments and you do not have to repay the loan until you – and your spouse or partner, if you have one – both die or you both go into long-term care. Be aware though that compound interest is added to the loan throughout your lifetime so the debt could be large by the time you die or go into care. Although the loan is called a ‘mortgage’ you have no obligation to make payments during your lifetime so you cannot default on them and so there is no risk that you can lose your property. Your home remains yours.There are plans that may allow you to make voluntary payments subject to certain limits, if you wish to do so. Early repayment charges may apply above a set value. Drawdown An increasingly popular sort of lifetime mortgage is called a drawdown. With this plan you can take an initial amount of at least £10,000, or it could be larger if you prefer. After that you can draw down the cash in stages as and when you want to. The interest is only applied to the amounts you release after you take them out. So the interest charged mounts up more slowly than it would if you released the full amount at the start. Lump sum The traditional sort of equity release is to take the whole lot at once. The average amount taken is around £126,000. You can then use that to achieve your objectives. Some people like to keep some in the bank as a reserve to give them peace of mind. But if you don’t want to use it all in the next few months then a drawdown plan is financially a much better option. Ask your adviser what they recommend. Income If you need to boost your income, a lifetime mortgage with monthly drawdown might be what you need. You can take money from the value of your home as a regular monthly income rather than as a lump sum or a succession of drawdowns. This regular cash could boost a small pension or a part-time wage and help you have something left over when you have paid your regular bills and outgoings. If you have lost an income or have retired and are waiting for your pension to start, monthly drawdown can fill that gap. However it isn’t a short term solution and once chosen it will continue. 6 £ £ £
Unlocking the cash in your home | The Complete Guide | 7 Home reversion plans Instead of a lifetime mortgage you could sell all or a proportion of your home to a specialist firm. These home reversion plans guarantee that you can live there for the rest of your life – or until you, and your spouse or partner if you have one – go into permanent long-term care. When that happens your home is sold and the firm gets its share of the value. You could sell a small proportion of the value right up to 100%. The firm will pay far less than the full market value of that share as it may have to wait many years for its money. While it does, you will live there rent free. With a home reversion there is no loan and no interest to pay. But you will still be responsible for the upkeep of the property and you need to make sure that you have a clear guarantee that you can live there as long as you like and that you do not have to pay rent. £
8 Downsizing protection One of the worries about equity release is whether it will be flexible if you want to move somewhere smaller. Nowadays that is less of a problem than it used to be but most equity release plans do charge a fee if you repay the loan early. If you decide to move to a smaller home which your lender will not accept for equity release this downsizing protection insurance will cover that charge. You can usually only get this protection after your loan has been in place for at least five years and of course it is subject to the inevitable terms and conditions which you should check carefully to make sure you are happy with them. With some lenders you can also take out protection for a spouse. If one of a couple dies or goes into care then the spouse can downsize and repay all or part of the loan without paying an exit charge for up to three years after that event. This can be a tremendous help when unexpected life events occur. Ask your adviser for details. Like any insurance make sure you fully understand the terms.
Being able to gift a lump sum to a close friend or family member is not always a luxury most of us can afford. But David, 64 and Elaine, 63 from Carrickfergus wanted their son to benefit from an early inheritance and after seeing a TV advert for equity release, they contacted Age Partnership. David had his reservations, “I was worried that I would have to give up the Deeds to my property, but the advice we received from our financial advisor eased those worries. Add to that the offer of the fixed interest rate and the clarity the advisor provided around their fees, it made us confident we wanted to proceed,” he explains. “Being able to gift some money to our son will make a significant difference to his life. He will be able to put a sizeable deposit against a first mortgage and get himself and his family onto the property ladder, which most young people are struggling to do nowadays. “It is wonderful for us to be able to see him benefit from the funds now, rather than wait until we are gone. Of course, this means that we will leave less behind when the time comes, but we are comfortable with this and feel it is the right option in the current climate. “Equity release was the right fit for us at this time in our lives. We would advise anyone to give such an option very careful thought before jumping to a decision but overall we would definitely recommend it”. Case Study This example is provided by Age Partnership Ltd It's wonderful for us to be able to see our son benefit from the funds now, rather than wait until we are gone. Unlocking the cash in your home | The Complete Guide | 9
10 stop it altogether. That is also true if you are under state pension age and get Universal Credit, Employment and Support Allowance, or tax credits. If you take a lump sum and spend it on, say, a holiday or your garden, then the Department for Work and Pensions can count the money as if you still owned it and reduce your benefit accordingly. But it may not do that if you spend it on debts, disability adaptations or equipment, or essential home maintenance. Call the Pension Service 0800 731 0469 to see if it can advise you. Calls are free and lines open 9.30am to 3.30pm. If you are under 66 talk to your work coach. If you take out a monthly drawdown plan then that will count as income when benefits are calculated and will reduce them. That is why people who get means-tested benefits often find it is not good value to take out equity release. Make sure your adviser is very clear about the means-tested benefits you receive and how they might be affected by equity release. Money taken from an equity release plan is not taxable and will not affect your state retirement pension or benefits which are not related to your income such as Attendance Allowance, Disability Living Allowance, or Personal Independence Payment. Doesmy home qualify? Not all properties will be accepted by equity release firms. The rules vary from lender to lender so this paragraph is just a guide. Generally your home must be worth at least £70,000 and must be in a good condition. Generally, leasehold property including flats must have at least 75 years of the lease left to run. Flats in blocks will normally have to be in good condition and have acceptable cladding. Freehold flats may not be accepted depending how they are managed. Former council properties and specialist retirement property may not be allowed, and mobile homes will never be accepted. Find out if your home is suitable by speaking to an adviser. Will it affect my benefits? If you receive a means-tested benefit – such as Pension Credit or Council Tax Reduction – then the money from equity release can reduce your entitlement or
Unlocking the cash in your home | The Complete Guide | 11 How much can I release? The amount you can borrow varies with your age, property value, health, and lifestyle. The youngest age for a lifetime mortgage is 55 and the amount you can borrow grows the older you are. At 55 you could borrow less than a quarter (22%) of the value of your home. It is slightly over a third (35%) at 63, 40% at 70, and half at 80 or older. The age that counts is when you take out the plan. These amounts are just a guide and will vary from lender to lender. If you want to borrow more later as you get older that may be possible. If you or your partner have a serious health condition or perhaps smoke or drink a lot you may be able to release more money from your home. Diabetes, heart problems, or common complaints like high blood pressure may also mean you can borrow more. So make sure your adviser knows the truth about your health and lifestyle. Generally if you are joint owners with someone then it is the age of the younger that counts and it is their health that will be considered. But lenders differ in the approach they take. Your adviser will be able to find the best lender for your circumstances. Ian, 60 and Julie, 62 have lived in Coventry for 40 years and were looking for a financial solution that ensured they could enjoy an early retirement in their much-loved home. “We requested a leaflet from Age Partnership and made some further enquiries over the telephone,” Ian explains. “I think most people have concerns about whether they are doing the right thing when they have spent their whole working life focusing on buying a house and paying off the mortgage. Are the company reliable? Is there a catch? But we felt assured by our advisor and they didn’t pressure us into moving forward until we felt comfortable to do so.” Julie went on to say, “We wanted to use the money to support our income. The Covid pandemic really convinced us that we should take the opportunity to do the things we wanted to do, while we are still young enough, and well enough to do them.” Both Ian and Julie are now retired and using the money they released to give themselves a monthly income. “Doing this has meant that we will have 7 years of retirement that we wouldn’t have had, and the money will replace our salaries until we get our state pension.” Case Study 50% 45% 35% 22% age 85 Release up to age 75 age 65 age 55 This example is provided by Age Partnership Ltd
12 • The lender does not know when they will get their money back. They have to wait until you and your spouse both die or go into long-term care. Apart from the interest, you may have to pay for a valuation of your home, and for independent legal advice. The lender may also charge you a fee. You will also have to pay for the advice you get. All these costs must be set out clearly before you agree. Make sure you understand them and are happy with them. The adviser who recommends the equity release plan must have a specific equity release qualification that means they can advise about all the advantages and disadvantages of doing it – and will be as likely to say ‘no’ as ‘sign here’. Moving house You never know what the future holds. So it is important that an equity release plan is flexible. With a lifetime mortgage you can move home if you want to – but the new home must be acceptable to the lender and its value must be enough to support the plan. See p.10 for homes that may not be suitable. Special retirement property will not usually be accepted. There may be penalties to pay if you pay off all or part of your loan before you die or go into long term care. So your choices may be more restricted than if you did not have the equity release plan. When you die When you – and your partner if you have one – die, then the equity release loan and the interest it has accrued are paid from your estate. That may mean there is little or nothing left for your heirs. If you are really concerned about your legacy, there are ways to protect part of the value. What will it cost? The cost of borrowing will depend on the type of plan you choose. The interest charged on a lifetime mortgage is higher than a regular mortgage. And it rose along with all mortgages in late 2022. Generally, it’s best to try to get the lowest rate you can for the plan that suits you best. This rate normally lasts for the life of the plan. Remember too that the interest on the plan is compounded – in other words, at the end of each month or year the interest is added to the loan and you start paying interest on the interest. So if you borrow at 6% the amount you owe will have doubled after 12 years. At 7% it will double in a little over 10 years. That is why you must choose a lender who is a member of the Equity Release Council. They will always guarantee that the amount owed by you, or your estate after you die, will never be more than the property is worth when it is sold. That is called the ‘no negative equity’ guarantee. There are several reasons that equity release lenders charge higher interest rates than you see on mortgages which are used to buy a home. • The ‘no negative equity’ guarantee has to be paid for. • You may choose a plan with other features such as spouse protection. Any extra features you choose will normally be paid for by a higher interest rate. • The loan is for life so interest rates must reflect what they will be over that unknown period. They cannot just reflect today’s rates.
% Unlocking the cash in your home | The Complete Guide | 13 Interest payment lifetime mortgages If you do not want your mortgage loan to grow you can pay the interest on it. Interest payment plans work like a lifetime mortgage but you pay some or all of the interest rather than it rolling up. You can pay it for a period – or for the life of the loan. If you pay some or all of the interest during the plan the amount you owe at the end will of course be less than if you hadn’t paid any of the interest and that will leave more for your heirs. It also means you will know how much you will owe when you die or move into long-term care. But only consider this option if leaving money to someone is important and your income is sufficient to pay the interest without affecting your lifestyle. If you take out one of these plans you can change your mind later and let the interest roll up. Protecting loved ones One of the many reasons given for not doing equity release is the natural desire to leave your home to your children. If you have borrowed part of its value to spend then of course there will be less for your heirs when you die. But remember that the value of your home belongs to you – not your children or other family members. It is perfectly reasonable for you to spend that value on yourself while you are alive. Most children would prefer their parents to spend their own money to give them comfort, security, and a bit of fun in their retirement. Children will also be very grateful if you use some of the value of your home to give to them now. Perhaps to help with a deposit for a home or to fund home improvements. It is a way of sharing the housing wealth that the older generation has built up. They may even say ‘thank you’! Protected lifetime mortgages If you worry that the whole value of your home may eventually be taken to repay the debt if you live a very long time, you can take a Protected Lifetime Mortgage. You only borrow against some of the value of your home – the remainder will never be taken by the lifetime mortgage debt when you die but this protection will not apply if you go into long-term care. For example, a couple who are able to release £50,000 and want to ensure their grandchildren are left with an inheritance could take £30,000 (60% of the maximum available) leaving 40% of the property protected to leave to their heirs. The arithmetic can be tricky but your adviser can do the sums.
14 Alternativesto equity release Equity release is not for everyone in all circumstances. If you have savings there is no point in borrowing money through equity release. Spend the savings first.
Unlocking the cash in your home | The Complete Guide | 15 Retirement interest only mortgages One new alternative to equity release is called a Retirement Interest Only (RIO) mortgage. With a RIO mortgage you pay the interest on the loan each month but you do not make any payments to reduce the original amount you have borrowed. Your monthly payments are lower than if you took out a repayment mortgage. There is no end date when you have to repay the loan because it is paid off when you die, move into long-term care, or sell your home. Downsizing The cheapest way to release money from the value of your home is probably to sell it and buy a cheaper one. However, there will still be costs. There may be tax to pay on the price of your new home. There are also estate agents and solicitors to pay to sell your home and buy a new one. And of course there is the cost of moving. You will also probably want to do some redecoration or home improvements. Those are the financial costs but moving home in later life can be difficult psychologically, especially if you are giving up the home you have lived in for many years. To find somewhere significantly cheaper you may have to move to a different part of the country or to a smaller or less pleasant property. It may not be sensible to move away from the relatives, friends, and neighbours that you may have to rely on if you fall ill or become less able to manage by yourself. Using a Pension Once you reach 55 you can cash in a pension that you have paid into, though that is very often not a good idea before you retire. If you do cash in a pension then 25% of it is usually tax-free – in some cases it can be more – and the rest is taxable. Your pension provider will deduct tax according to HMRC rules which normally means too much tax will be deducted. You can claim it back using a special form. Go to gov.uk and search P53. If you do not claim it back HMRC should sort out the correct amount at the year end. But always check it is correct!
16 Financial help Income If you need more income it is worth checking to make sure you are getting all the help from the state that you are entitled to. Many people over state pension age do not claim the help they can get – such as pension credit to boost their income or a reduction in council tax from their local council. State pension age is now 66 for both men and women and it will not rise again until May 2026. Under that age help is less generous but can still be worthwhile. Pension It is possible you have a pension that you have forgotten about. The free Government Pension Tracing Service will help you find it. Go to www.gov.uk and search ‘pension tracing’. Repairs If you need repairs or changes to your home then your local Care & Repair in England, Scotland, or Wales may be able to help – search ‘Care & Repair’ online. They can also help find grants and other help for things you need. If you or a partner are registered disabled then the chances of getting help are much higher. Housingcare.org also has useful contacts for grants and other help to stay in your home. And Turn2us.org.uk can help you find grants or charitable payments.
Next Steps This guide is just that – a guide. You should never make any long-term decisions about equity release without careful thought. Only take out a plan from a lender which is a member of the Equity Release Council – I cannot stress enough how important that rule is. Nowadays any adviser recommending equity release must have specialist qualifications Your adviser must talk to you about other options and explain the advantages and disadvantages. If they recommend you should not go ahead then you should take that advice. If you do go ahead you will need to allow the lender to arrange a survey of your home. You may be expected to pay for that and you should make sure you are happy with the valuation. Next you must get independent legal advice from a solicitor. They will explain your legal position and make sure the deal is as you believe it to be. You can choose your own solicitor but the Equity Release Council has a list of solicitors you can use with confidence. They will charge a fixed fee plus their expenses, called disbursements, guide you through the legal points and make sure the plan is suitable for you. If you have children or others who may expect to inherit your home then you may want to discuss your plans with them. There is no legal obligation to tell your heirs, consult them, or get their blessing. But it is usually a good idea and many parents would like to do so. Your adviser may recommend it but always remember it is your home paid for with your money and you are perfectly entitled to use it to support yourself or make your later life better. If you want to involve your children you can ask them to the meetings with your adviser. But remember the decision is yours alone. Unlocking the cash in your home | The Complete Guide | 17
Through the Radio Times Equity Release Service, you will receive specialist, award-winning equity release service from Age Partnership+, who are part of the UK’s No.1 equity release advisor* . The advice that you will receive will take into account plans from all equity release lenders so that we find the best one for your individual circumstances. If equity release isn’t the right solution for you, then we have advisors and specialists who can discuss other later life lending options with you. Our customer promise With a lifetime mortgage, you could benefit from: Tax-free lump sum of cash Staying in the home you love No monthly payments required EQUITY RELEASE RELEASE ADVISOR Content provided by Age Partnership+ Through our service you could get access to... Impartial and independent advice A free no-obligation quotation posted out to your home Your own dedicated advisor to help you along the way Whole-of-market comparison to find a suitable plan for your needs Access to exclusive plans from leading lenders ? *Based on a volume of plans, ISS data, 2022. Age Partnership+ is a trading name of Age Partnership Limited.
Things to consider Plans from the whole of the market will be considered, the features mentioned and the amounts raised are subject to the lender’s criteria, terms and conditions. These may take into account age, health and lifestyle factors in order to provide you with an enhanced amount. Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care. Equity release may involve a home reversion plan or lifetime mortgage which is secured against your property and will reduce the value of your estate and impact funding long-term care. To understand the features and risks ask for a personalised illustration. We provide initial advice for free and without obligation. Only if your case completes would an advice fee of £1,995 be payable. Other lender and solicitor fees apply. For your free no-obligation quotation, call the Radio Times equity release team on Or visit www.radiotimes.com/equity Trustpilot Content provided by Age Partnership+ The Radio Times Equity Release Service is provided by Age Partnership Limited. Radio Times is a trading name of Immediate Media Company London Limited which is an Introducer Appointed Representative of Age Partnership Limited, 2200 Century Way, Thorpe Park, Leeds LS15 8ZB. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Age Partnership Limited is authorised and regulated by the Financial Conduct Authority, FCA registered number 425432 and is trading as Age Partnership Plus.
The Radio Times Equity Release Service is provided by Age Partnership Limited. Radio Times is a trading name of Immediate Media Company London Limited which is an Introducer Appointed Representative of Age Partnership Limited, 2200 Century Way, Thorpe Park, Leeds LS15 8ZB. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Age Partnership Limited is authorised and regulated by the Financial Conduct Authority, FCA registered number 425432 and is trading as Age Partnership Plus. RT_0923