You may be familiar with the concept of equity release. It’s a range of financial products aimed at the over 55s who wish to unlock the value of their home and turn it into a cash lump sum, while carrying on living in the property. A lifetime mortgage, the most common form of equity release, is a loan secured against your home, for an indefinite term at a fixed rate of interest for life. The assumption is that you will stay in your home for the rest of your days, but what if circumstances change and you want to move?
You may be interested to hear that it is perfectly possible to use equity release as a financial vehicle to buy a different property. What’s more, you can even use some of the lump sum to carry out any renovations that need doing!
The fact is that equity release is becoming a more popular financial solution for homeowners in the 55+ age bracket who wish to move to a new house but lack the funds to do so. If you’re interested in exploring your options, and temporary COVID-19 regulations notwithstanding, you should talk to an experienced equity release expert and arrange to port the equity across to the new property to help you buy it.
Here are three scenarios to show you how it can work.
Mr & Mrs Smith are a retired couple would like to move to their forever home but their chosen property is out of budget. They wish to pay off the existing mortgage and reduce their monthly payments. Using equity release to purchase their new home allows them to clear the outstanding mortgage while obtaining the necessary additional funds with which to buy their new property. In short, the couple have clearly understood the benefits that equity release can offer them: they are able to release equity from the new home they haven’t yet purchased to enable them to buy it!
The sale of their current property, the mortgage redemption and the purchase of their new home will all be finalised together. The proceeds of sale together with the equity released from the new property combine to give them enough to buy the new home, and they don’t even have to make any monthly payments.
In this scenario, the concept of equity release is similar to that of a residential mortgage. However, instead of it being based on affordability criteria, it is based on the loan to value (LTV) against the new property.
Mr & Mrs Jones are also retired and would like to downsize from their London home. They plan to pay off the rest of the mortgage so as not to drain their monthly pensions income. Their current home is on the market for £1 million and they have found a smaller home in the country for £500,000. The difference should be enough to cover the cost of moving including stamp duty, and to redeem the mortgage. However, the new home could do with a bit of work.
The couple opt for a Lifetime Mortgage to raise funds for some immediate home improvements without the burden of monthly repayments, plus a reserve fund in case it’s needed.
Mrs & Mrs Brown want to buy a holiday home in the West Country and split their time between their main home in Sussex and their holiday home. They are using equity released from their primary residence to help them buy their Devon cottage outright.
The couple is aware that they are required to live in their primary residence for at least 6 months of the year, and that they will have to pay the higher rate of stamp duty on their Devon property purchase.
As you can see, equity release is much more than a financial tool aimed at cash-poor but asset-rich pensioners who don’t want to move. On the contrary, it’s a financial solution that can help elderly homeowners in many ways, and there are various options to customise the product to your requirements.
Some people choose to pay back the interest on a monthly basis, others prefer to let the interest roll up, leaving the loan plus outstanding interest to be paid off when the house is finally sold. There are so many products available under the umbrella of equity release, you’re sure to find the one that’s perfect for your personal circumstances.