Frequently Asked Questions about Equity Release

Is equity release safe?

When people ask this question they are often thinking about the very early products that had little or no safeguards. This has all changed. Be assured that a proper, fully regulated equity release plan has all the appropriate safeguards and protection you would expect in a modern financial UK product.

An adviser will usually only offer schemes provided by members of SHIP (Safe Home Income Plans) or, in special circumstances a plan which gives the same safeguards. As a minimum this ensures that:

• You retain the right to remain in your home as long as you wish.
• You are free to choose to move to a suitable alternative property.
• You are given a "No negative equity" guarantee.
  

A recommendation and advice from an Independent Financial Adviser will come with the protection of his/her indemnity insurance. In addition your adviser and the equity release provider will insist that you take independent legal advice. Your own solicitor will then check the final agreements and ensure your understanding before you sign them.

WARNING: Some products such as ''Sell and Rent Back'' plans call themselves equity release, but in fact are no such thing. A true equity release plan is regulated by the Financial Services Authority - ''Sell and Rent Back'' plans are not, and should therefore be treated with the utmost caution. Many of these plans can at first appear very attractive as they will offer more. But what is the point of the extra cash if you end up losing your home, or are forced to paying an ever increasing monthly rent? You should of course, consider all options before making financial decision, but be careful and cautious and always seek professional independent advice.

Do I qualify for equity release?

You will usually qualify for an equity release plan if:

• You, and your partner are aged at least 55
• You own your home (freehold or leasehold)
• Your home is worth at least £50,000
• Your home is mortgage free or you can clear your mortgage from the equity release proceeds

How much cash can we release?

This will depend on a number of factors such as your age, the value of your house, or with one type of plan how much of your property you are willing to sell. The amount you can release will vary from one lender to another. Because there are so many variables it is essential to get advice from an independent specialist adviser who has access to the whole market.

What does it cost to set up an equity release plan?

Irrespective of property value the total cost of arranging most equity release plans can be very similar and will usually be in the region of £1,500 to £2,000. However much of this cost is usually deducted from the cash advance upon completion.

The various equity release fees and charges usually come in two stages: those payable upon application and those payable upon completion.

• Upon application you will usually be asked to pay just the provider's valuation fee, and the amount will depend upon your property value and will vary from one lender to another.
• Upon completion the main costs payable are: provider’s plan fee (sometimes added, sometimes deducted), your adviser's fee (deducted), and your own solicitor’s costs (deducted).

It is worth noting that whilst you can save yourself an adviser's fee by arranging your plan direct with a provider this could mean you are charged a higher rate of interest, plus you will also lose out on the benefit of having ''whole of market'' advice. An expensive way of avoiding just one fee!

What should you expect from your equity release adviser?

The services of an experienced and independent adviser are invaluable and should go beyond just recommending the right plan for you. His or her experience should help you avoid pitfalls and problems from the outset.

By knowing the "ins and outs" of the various plans and having knowledge of the all providers your adviser's experience should make the whole application process as simple and trouble free as possible. Remember, not everything will be found in brochures and "guides", and whilst it may be considered old fashioned, there is no substitute for good old fashioned know-how.

To make life as easy for you as possible, your adviser should handle any "hiccup" that may occur, and act as liaison between you, your solicitor and the lender.

Which type of scheme is best for me?

Until your adviser knows much more about you and your aspirations etc this is impossible to answer.
If, after examining your situation and future needs your adviser feels that equity release is not in your best interests he/she will tell you so, and then, where possible will discuss other options with you.

However if we agree that equity release  is the most suitable option for you, we will then discuss with you the advantages and disadvantages of all the different types of products and recommend only that which is only the most suitable one to meet your aims, aspirations and circumstances.

How long does it take to arrange an equity release plan?

After valuation, and once you have received and accepted "the offer" from the provider, you can typically expect the application to reach completion in approximately six to eight weeks. Some cases can be quicker, but it is worth remembering that should a case not be quite straight forward, for example it has some structural aspect that has to be clarified etc a case can take longer. This is where an experienced adviser is invaluable as he/she will know what to look out for, and how to prevent problems before they even arise!

Who assesses the value of my home?

The lender will appoint an independent surveyor who will establish the market value of your property. In addition to determining the market value the surveyor will also provide an ''insurance value'' for your property. Most equity release providers also insist that the surveyor provides the values of at least three comparable properties, in the general area that have sold in the last twelve months. This will help eliminate the possibility of surveyor ''bias'' and produce a more realistic value of your home.

There is no truth in the myth that equity release companies will purposely down value your property. If this were the case the lender would not be able to offer you as much money, which I'm sure you'd agree would not be logical!

Will I still be able to leave an inheritance?

Some schemes, including reversionary and some lifetime mortgages, include an option that will enable you to guarantee an amount of equity is ''protected'' if you so wish. Other products such as draw-down plans can help minimise the effect of compound interest.

Remember, if you have sold less than 100% of your property you can benefit from any increase in the value of the equity you have retained.

All schemes recommended by MFMH advisers will provide a negative equity guarantee, which ensures that your loan amount will never exceed the value of your home, so no debt can ever be left from these schemes.

Tip: Do not decide on any particular plan option until you have met with a specialist adviser who will talk you through the "ins and outs" of the products and their options. Releasing cash is a big step, so make sure you get it right first time!

Can I move home after I have done equity release?

Yes. The option to move is built into every scheme we recommend, and all the plans are ''portable'' but the new property must be acceptable to the provider.

It is also worth noting that you are responsible for your buying and selling expenses, and each plan will have its own terms and conditions regarding moving, which may include repaying part of the loan if the new property is of lower value.

What happens if I want to repay the equity release loan?

Equity release plans are a long term arrangement, and whilst designed to be repaid after death (of last surviving partner) all providers of lifetime mortgages must give you the option to repay all or part of the debt should you wish to do so. However a lender does have the right to make an Early Repayment Charge (ERC) if you want to repay early. The ERC can vary enormously from one provider to another, and these should be discussed thoroughly with your adviser before deciding on a plan.

Reversionary type plans present a different situation because you would have sold a portion (or all) of your home to the reversion provider in return for a tax free cash lump sum and lifetime lease. However, a reversion provider may be open to a reasonable offer should you, or your executors decide they would like to retain the property.

What happens if my partner dies first?

You retain the right to stay in your home for as long as you wish. Nothing is repaid until the last surviving partner dies or leaves the property permanently.

What happens if I go into a nursing home?

If you have a joint plan your partner will continue to live in your home for as long as they wish. But if you are single when you move into nursing care the loan will have to be repaid, usually from the sale of your home. Any remaining equity will be paid to you.

With a reversion plan the proceeds of the sale, after expenses, are split according to the pre agreed percentages. For example, if you exchange 75% of the value of your home you would receive 25% of the net sale proceeds.

N.B: One product provider currently offers the option of allowing you to rent out your property (to help pay for nursing care fees) whilst you are in a home, and it is hoped that other providers will follow this very innovative course.

Who is responsible for the upkeep of my home?

You are. You will continue to be responsible for your normal expenses such as electricity, gas, council tax and water charges. You will also remain responsible for the general maintenance of your property both inside and out, and for maintaining the correct amount of building insurance on an indexed linked basis.

Later, after starting an equity release plan can I release more cash?

Further cash releases are not guaranteed and will depend upon a number of factors such as your property value, the amount of loan outstanding and market conditions generally. It is for this reason that you should be as realistic as possible about your future financial needs and aspirations.

Tip: If you require peace of mind about your future cash needs, a ''draw-down'' plan, which offers a future lending facility, might be a wise choice. But don't forget, not all draw-down plans are alike, and each plan has its own particular features and conditions, some of which may not suit your particular needs.

Does my family have to be involved?

No. It is always your decision to inform and involve your family or not. However, we would always recommend their involvement from the outset and you could, for example, invite a family member, or close friend to be present at all meetings.

Will I need a new Will?

Not necessarily but you should review your Will on a regular basis. We would also recommend that you consider arranging a Lasting Power of Attorney for each spouse in addition to your Will.

If I am receiving state benefits can I still do equity release?

Receiving state benefits does not prevent you from doing equity release. The real question should be "is it worth doing?" If setting up an equity release plan is going to cause you to lose, or suffer a reduction of benefit(s) you have to decide if the "net result" still makes it worthwhile for you.

For those receiving benefits, equity release has been a real blessing, and have suffered very little, or no loss at all in benefits. However each case is different and you should always take proper advice from a number of sources including a specialist adviser, the DSS, Help the Aged or your local Citizens Advice Bureau.

Can I release equity from a holiday home or second home?

Equity release is getting more innovative, and yes one lender has products that will allow you to release cash from a holiday home, second home and even rental properties in the UK. These are non-standard products with particular criteria and a specialist adviser can provide you with full details.

Another innovative lender has a product that offers the possibility of releasing cash from a property being used as a business such as a B&B!

CHECK THAT YOUR MORTGAGE MEETS YOUR NEEDS, IF YOU WANT TO MOVE, SELL, OR YOU WANT YOUR FAMILY TO INHERIT