Equity Release

Equity release plans, also called lifetime mortgages, home reversion schemes or home income plans, are a way for people to release cash to improve their standard of living. Whether you want to buy a new car, pay for a holiday, home improvements or simply to make daily life more comfortable, equity release plans essentially allow you to borrow money against the value of your home, with the debt being repaid from the proceeds of the sale of your property after your death.

Although there is a wide range of different schemes available, they all work on the same principle. This involves lending you part of your home's value in return for a share of the proceeds when you die. In most cases you will need to be a minimum of 60 years old, and have no outstanding mortgage, although you may be able to use the released equity to repay the remaining loan.

Equity release plans can be quite complex, and are a major step for many people, and so it is vitally important to take good advice before you commit to anything. For most people, their house is the most expensive asset they own, as well as being their home.

Features of an Equity Release Plan

• They can provide a lump sum, a regular income, or both. The lump sum may be tens of thousands of pounds and the monthly income boost may be life changing.
• Money released from a main residence is tax free, although there may be tax to pay on any income or growth if the cash is put into an investment.
• You do not have to move house or sell your home to unlock equity. Reputable equity release schemes provide a rock-solid guarantee that you will be able to continue living in and enjoy your home until the day you die - and in many cases still be able to leave something of the property's value to your family.
• If you do not have children or family to leave your property to after you die, then equity release might seem an even more attractive idea.
• Some schemes can also be used as a way of cutting inheritance tax bills. Inheritance tax is currently at 40% on everything left behind over £312,000 (2008/2009). Importantly, this figure includes the value of your home.
• The current high value of many properties means that IHT is no longer something that only the rich have to pay. Equity release plans are a perfectly legal way of mitigating inheritance tax, and could be used, for example, to give a child or grandchild the deposit to buy their own property.
• Schemes can also be used to pay for care bills without having to sell up at what can already be a traumatic enough time.

Equity release plans will not suit everyone, and it is always worth considering whether funds could be raised affordably from other sources before going down this route.