Understanding Equity Release and UK Law
Equity release in the UK is a hot topic at the moment, and with good reason. Equity release allows homeowners to access their home’s equity (the difference between what it is worth now and what it was worth when they bought it) without having to sell their property or incur any ongoing costs of ownership. This can be an attractive proposition for many people who are looking for ways to fund retirement but don’t want to move away from their family homes.
In UK law, equity release is considered as a form of secured loan, and the borrower (usually someone aged 55 or over) has to provide a percentage of their home’s value as security. The lender then takes this equity from your property so that they can offer you some money in return every month for up to 25 years.
The only real disadvantage is that once you have signed on the dotted line it could take between nine months and two years before any funds are made available – but if you had an urgent need for more cash earlier than planned, there would be no easy way out.
So what does all this mean? Well assuming that your house continues to rise in price during those eight-odd years until retirement age, it will probably still be worth more after ten or fifteen years. In the long run this could work out better than a reverse mortgage.
But there is one more thing to consider – the interest rates you will be charged for your loan:
Equity release products are not regulated by the Financial Conduct Authority, so providers can charge whatever they like (within reason). This means that some people will pay as little as three per cent while others could end up paying over seven or eight per cent. The difference between these two might only be a few hundred pounds, but it’s worth noting if you plan on using equity release later in life when earning power and savings may have dwindled away somewhat.