Guide to Equity Release

Caesar and Howie are members of the Equity Release Solicitors Alliance.  This is a group of solicitors throughout the UK providing specialist legal service to clients taking out equity release products. Many people today are reaching retirement with a smaller nest egg than they had hoped, mainly due to a level of pension being less than anticipated. Additionally people are living longer and many retired people are concerned that their savings will not be sufficient to allow a standard of living they were hoping for.  It is worth knowing that extra money can be raised from an Equity Release Plan.

With the price of houses soaring over the past 20 years home owners of mature years can have a large asset invested in their homes.  Some decide to down-size to a smaller home when the family grow up and fly the nest thus releasing equity for them to enjoy in their sunset years.  For others this may not be an option if they wish to remain in the family home.  However, there is another option available to them.

Some financial institutions are now offering equity release products which allow the homeowner to release some equity from their property but at the same time, remain living in their own home. There are two types of products on offer, being the Lifetime Mortgage and The Home Reversion Scheme.

With a Lifetime Mortgage a borrower will able to obtain a percentage of the market value of their home. It differs from a normal mortgage, however, as unlike in a conventional mortgage a borrower will not have to make monthly repayments. Nothing will be repaid to the lender until the death of the homeowner/s.  If the mortgage is taken out by more than one person nothing need be repaid to the lender until the death of the second borrower.  The lender recoups its money, plus accrued interest, on the death of the surviving partner, or when the surviving partner has to go into care.   

For example Mr and Mrs X took out a Lifetime Mortgage and received a lump sum which amounted to 20% of the market value of their house in 2001. Mrs X dies in 2014 having been left a widow for 2 years. On her death the lender will entitled to the initial lump sum plus interest.

The initial equity release advance is decided by the lender. One of the main considerations taken into account is the borrower/s life expectancy. This will be explained in more detail by the borrower/s financial advisor.

 As you can see with a Lifetime Mortgage a borrower still remains owner of all the property. This is not the same as a Home Reversion Scheme where in return for the equity the borrower enters into joint ownership with a finance provider who will purchase a percentage share of the property at a discounted price.  The proportion of the property which can be  transferred depends on the age of the owners and of course the amount of equity they wish to realise.  An independent valuation of the house is required to work our these figures. . In effect the owner  sells a share of his property to the finance provider but the lender does not receive the price until the death of the second house holder.  Again, because it is a ‘joint ownership’ the parties taking out the reversion plan are entitled to live in the house until their deaths or being taken into care.

Please note there are many variations to the Lifetime Mortgages and Home Reversion Schemes on the market, which our financial consultants will gladly explain to you. 

These products have been become very popular by our clients in the last few years. Caesar &Howie have therefore set up our own highly specialised team to advise clients in this area. To put our clients’ minds at rest Caesar & Howie will only deal with financial bodies, consultants and brokers who are registered with the Financial Services Authority (FSA) and the majority of whom  have signed up to Safe Income Home Plan Code of Practice(SHIP). By signing up to SHIP it will mean that the lender or financial consultant will follow regulations to safeguard the borrower’s position. They will have to explain the conditions of the loan and the implications for the borrower. Our team will receive a Certificate from the lender signed by the borrower verifying that this has been done. In addition members of our team will again go over the conditions of the loan to ensure everything has been understood and that our client’s best interests are being met. All financial consultants that we deal with are highly knowledgeable on the financial products available and will be able to help the client decide which product will be the best for them.

If you go ahead with any of the equity release products our team are there to help and advise you every step of the way. Our team will obtain the title deeds over your property to check that everything is in order. They will then be able to draw up all the necessary legal documentation which will require to be signed. They will also ensure that all relevant searches are obtained. Once the title deeds and lender’s instructions have been received the whole legal process should not take any longer than 28 days.

You should also note that clients do not have to live locally to be able to utilise our efficient service.  Instructions can be received long distance and there will be no requirement t to visit our offices. In fact we handled cases throughout Scotland and the Islands.  Only in rare circumstances are clients required to be seen in person.

If you are interested in finding out more about Equity Release products or simply would wish any query answered please do not hesitate to contact us when our team will be more than happy to help you.