UK Equity Release

UK Equity Release

UK equity release refers to the available mortgage options sought by individuals over the age of 55, looking to free up extra finance for a range of financial solutions. There are a number of UK equity release products on the market, though choosing the right deal can often be a complex and difficult process.

Although there are a number of different UK equity release mortgage products on the market, most products fit in to two of the following categories: lifetime mortgage and home reversion. Both products enable the mortgagor to live within their property until death or being moved in to residential care without charge, yet the short and long term financial implications could be significant depending on the equity release product chosen by the individual.

A lifetime UK equity release mortgage enables a borrower to withdraw a mortgage which only allows the mortgage provider to seek the full payment once the individual dies or is moved into a permanent care home within the UK. There are a number of different lifetime mortgages available for individuals within the UK, each with varying terms and conditions:

•    Interest only – when the borrower does not need to pay the full loan until the end of the plan, although interest rates are paid monthly and often variable
•    Interest rollover – The borrower can live in the property until death without charge, although the interest calculated each month builds up to find a total sum. For younger equity release seekers, this is not a suitable product
•    Home income plan – Borrower uses the mortgage to buy an annuity and provide themselves with a fixed income for life when funds are typically short and to enable themselves to live. Typically only suitable for the only 80s

As can be seen, there are a number of available lifetime mortgages for individuals seeking UK equity release, with certain products suiting some individuals and certain products suiting none at all. The undertaking of a UK equity release scheme is a significant financial move for a number of individuals and should not be taken lightly.

As well as lifetime UK equity release mortgage plans sought by some individuals, home reversion plans may also be a suitable move for certain individuals seeking to free up extra finance. Rather than gain a lifetime mortgage solution, a home reversion plan will typically see the individual obtain a lump sum from a specialist home reversion lender, in part selling their property to the company in the process. The specialist company will enable the client to live in the property until death on a tenant basis, claiming full rights to the property once the plan holder dies, selling the property and claiming all the profits. As well as full home reversion plans, part reversion plans can be found with the principle remaining largely the same.

Many individuals see an equity release product as a last resort when seeking to release extra finances in order for them to live. Individuals currently receiving state benefits in the form of pension payments, saving benefits or council tax benefits may however suffer from obtaining a UK equity release product, with the money obtained taxed and the means tested state benefits likely to be lost through extra received income.

The advice of a financial adviser is likely to be essential for all individuals seeking UK equity release plans. UK equity release products are typically daunting procedures for many individuals and understandably so considering the complexity associated with each product. All equity release seekers should think particularly carefully when choosing the product they seek, with individuals likely to decrease the inheritance available to their family and are likely to lose capital in the property which they live. There are a number of positives associated within UK equity release products, but the negatives associated should be given careful thought when seeking a financial solution.

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