In principle, there are two types of equity release – home-reversion schemes and lifetime mortgages. Home-reversion schemes are when you sell all or part of your home either for a lump sum or an income. Lifetime mortgages are when you mortgage all or part of your property either for a lump sum or an income. In practice, home-reversion schemes are now very niche and lifetime mortgages dominate the market.
Lifetime mortgages are similar to regular mortgages in that you continue to have the rights and responsibilities of a homeowner. The difference is that you do not necessarily have to make repayments during your lifetime. Instead, your home is sold when you die or move into permanent care.
As interest continues to be added for as long as the loan is outstanding, this can mean that the equity in your home is vastly reduced. In fact, you may even go into negative equity. If, however, you choose a product with a no-negative-equity guarantee, that should not have any impact on your heirs. For some people, it may be a useful way to reduce their Inheritance Tax liability.
That said, there are now variations on lifetime mortgages which offer more flexibility to borrowers. For example, some allow you to make interest repayments during your lifetime when you are able so as to reduce the cost to your estate when you die (or move into permanent care).
You usually have to be over 55 to take out equity release. Obviously, your life expectancy will be taken into account when the lender makes you an offer. Bluntly, the older you are, the better the deal you are likely to get. You may, however, get an even better deal by monetising your current property in some other way, for example, by taking advantage of the government’s rent-a-room scheme. You might also want to think about downsizing.
Mortgages and Home Reversion plans are not right for everyone. This is a referral service.
The Lifetime ISA
The Lifetime ISA is the main way the government tries to help first-time buyers get on the housing ladder.
The Lifetime ISA can be used to save either for the deposit on your first home or for your retirement. You can open one if you’re between the ages of 18 and 40 and save up to £4000 per year until you reach the age of 51. You get a 25% bonus on your savings, up to a maximum of £1000 per year. This means that technically, you could get an extra £33,000 toward your first home, although you would need to wait until you were 51 to buy it!
For more information, please contact us
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Tax concessions are not guaranteed and may change in the future. Tax free means the investor pays no tax.
