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Equity Release

Equity Release

Getting a loan through equity release schemes


An equity release is when a homeowner uses all or part of his house as a loan security. The owner is given money in return for a share in home ownership. The lender does not occupy the house. He only claims a monetary share of the house which he will reclaim when the house is sold. The house can only be sold when its owner dies or moves to a lifetime home care. Till then, the homeowner is the sole occupant of the house.

Not everyone can qualify for home release schemes. A homeowner must be over 55 years to be eligible for the scheme. He must have little or no mortgage on the property. The loan will be used to pay any balances on mortgages. This way, the lender will not have to pay off pre-existing mortgages upon the sale of the house. Loans given are usually at least £15000. Anything lower than that amount cannot be released. The value of the property also determines your eligibility for equity release loan. Only properties worth more than £75000 are admitted into the scheme.

Types of Equity release schemes

There are two main types of equity release schemes. These two are lifetime mortgage and home reversal mortgage.

Lifetime mortgage scheme

Lifetime mortgages allow you to retain total ownership of your home. You do not have to pay any rent. This is contrary to shared ownership or the home reversal type of equity release scheme. An applicant for a lifetime mortgage must be at least 55 years old. If he is living with a partner, the partner must also be 55 years old.

Different lenders have various ways of handling lifetime mortgages. A lender may allow you to enter into no negative equity guarantee plan. This program ensures you that the loan you take plus accumulated interest will not exceed the value of your property. The advantage is this scheme is that you will be able to pay the mortgage in full from the money made from the sale of the house. You will not be required to pay the balance of the loan from your own pocket. No negative equity prevents the horrors of endowment mortgages that many people in the UK are now putting up with.

Home reversal scheme

The other type of equity release scheme is the home reversal. An individual who enters into the home reversal plan immediately loses ownership of all or part of his house. This share of the house that the original owner loses goes to the lender. The original owner must, therefore, enter into a lease with the lender where he may live rent-free or pay or rent token to the lender if he has to live on the property. If he moves out or dies, the house is then sold and the money used to repay the loan. To qualify for the home reversal plan, you and your partner must be at least 65 years old. The loan issued is equal to or less than the current market value of your property.

How long does it take to remortgage a home


Remortgaging allows you to recover the money you have been repaying your original mortgage lender by paying off the balance of his mortgage and pocketing the rest of the money. You pay off this balance from the money you get from remortgaging. Because the amount of money you get from remortgaging depends on the value of your house, you will be able to keep part of these funds after repaying the balance the original mortgage. There are many reasons why you may want to remortgage. The big question is how long does it take to remortgage. The more urgently you need the money, the shorter you will want the remortgaging to take.

Be actively involved

The first thing that you need to be clear about is why you need to remortgage in the first place. Your reason for remortgaging will push you into processing the mortgage faster. Most delays in processing remortgages are human. When you do not feel the urgency to process the mortgage faster, you will slacken, and the remortgage will take longer. You must actively follow up everyone involved in remortgaging your home if you need the money sooner. Consider two people, one who want the money to build an annexe and the other who wants to pay school fees. The one who needs the money for building an annexe is not confronted with an emergency. His needs are not as time bound as the one who wants to pay for school fees. He will let the mortgage processing process takes its own course.

Planning Ahead

Remortgaging will take a shorter time if you intend well before starting the process. There are many steps involved in remortgaging. Some of these steps can take quite long to accomplish. They may take even longer if you are not adequately prepared. You must have all documents ready before you start remortgaging. Make sure that everything the parties involved in remortgaging want is ready when they need it. You can only do this by anticipating what will be necessary. You may find it hard to know all documents required from you during remortgaging. If you are doing it for the first time, you can ask a solicitor about the things you need in getting a remortgage.

The Remortgaging process

Remortgaging involves the same step as mortgaging except now you have two loans to process. One of the loans will close, and the other starts. Your current lender will expect you to pay off the balance of his mortgage plus some fees. Some of the fees you will pay to include closure charges, early repayment charge and missed payment fees. Closure or exit fees are paid for when the mortgage terminates. It can be replaced by early repayment charge if the mortgage ends before the prearranged time. Most people who remortgage find themselves paying this fee rather than the closer fee.

The new lender and other people you recruit to help you with remortgaging may affect how long you remortgage. You will need a solicitor during the whole process. Make sure that the solicitor is highly efficient. He must be fully engaged in this duty. You can get such a solicitor by referral or from one of the many solicitor review websites. 

The growth of the Equity release market


Equity release is a scheme in which people over the age of 55 can place their homes on security to effectively take out a loan. The equity release scheme is helpful for individuals who want a lump sum or a regular income for their retirement, but do not have enough in their savings. The scheme safely uses your home as a security to extract cash out of your property while you still own it. The payment for the loan is made after the sale of the property is complete or when the individual dies. The equity release market has been surging in the United Kingdom in recent year.

Equity release market growth

As the policymakers’ outlook of equity release improves and with a good relationship with the government and Financial Conduct Authority (FCA) the equity release market is expected to garner more interest from the public. The “no negative equity” also guarantees that the money you need to pay back is fixed no matter how the property value changes in the future. According to the Equity Release Market Report of Spring 2017 from Equity Release Council:

  • 2016 was the record breaking year for equity release growth.
  • The first half of 2016 saw 37% growth, and the second half was up by 38% compared to the same period in 2015.
  • 65% of customers opted for drawdown option, 35% chose lump sum option and a small number took out home reversion plans.
  • This growth accumulated a huge total of 1.24bn of financial transactions.

Home reversion scheme

There are two types of equity release scheme popular in the United Kingdom, home reversion scheme and lifetime mortgage. An individual has to be over 65 to be accepted in the Home reversion scheme. In home reversion scheme, the equity release only buys a share of your home (say 20%). The amount you get is, however, lower than the current market value. You do not have to move your assets or let anyone move in. The equity release company does not get any money until the property is sold. Once the individual dies or moves to a different long-term settlement, the property put on sale, and the company gets a percentage of the share it bought.

Lifetime mortgage scheme

Lifetime mortgages are the more popular of the two scheme. Here an individual borrows an amount equal to a relative value of their home. An individual over 55 can start with the home reversion plan. The person needs to pay interest on the loan. They do not typically need to pay any amount until they die or the property is sold. The interest is then compounded which could mean with the current rates, the debt could double in 11 years. Equity Release Council reported a growth of 22% in customers with lifetime mortgage scheme in 2016. The trend of increase have been growing since 2013 and equity release market is one the fastest growing mortgage market in this period.

Costs of Equity release scheme

The cost of equity release is quite expensive compared to regular mortgages. The lifetime mortgage scheme can in estimate cost three times more in 20 years, and with home inversion plan you may only get 20% advance with a 70% of your property in used in the scheme. It should be considered if you are facing a difficult financial situation without the fear of losing your home. Although FCA handles the marketing of equity release, you may want to consult with a financial advisor registered with the FCA.

For ageing people, this scheme provides a comfort without dependence on family or relatives. Still owning an accommodation without fear of losing it makes it an interesting scheme. The growth also reflects that many individuals are interested in this financial assistance. However having a clear picture of the scheme will make help you the right decision.