Equity release has become an increasingly popular method for UK homeowners to fund their care costs in later life.
This option allows individuals to access the value of their home without the need to sell or relocate.
The article provides a comprehensive guide on how equity release can be used to cover home care and live in care costs, offering insights into its benefits, risks, and the importance of seeking professional advice.
The article will help you do the following:
Here are 7 key takeaways from this article:
In the UK, the idea of staying in your own home as you get older, rather than moving to somewhere like a residential care home, has become increasingly popular.
This preference has led to a rise in the need for home care and live-in care services, along with a search for flexible ways to pay for these services. Equity release is seen as one option, offering people a way to access the value of their homes to fund their later life care needs without having to move out.
This financial solution allows people to tap into the equity of their property, providing them with either a single lump sum or regular payments. The funds obtained can then be used to cover the costs of various care services, enabling people to receive the necessary support within the comfort of their own homes.
However, the decision to use equity release for funding home care or live-in care involves careful consideration of its long-term impact, including potential effects on inheritance and the homeowner’s financial situation.
Equity release schemes allow borrowing against the home’s value, with the amount borrowed plus interest typically being repaid when the home is eventually sold. This process requires a clear understanding and careful planning, considering its implications for future living arrangements and the financial legacy left to family members.
The importance of seeking advice from financial experts is emphasised, ensuring that people are fully informed about the benefits and risks associated with equity release as a means to finance care in their own homes.
Here is a short video that explains what equity release is.
Equity release can be a viable option for many homeowners looking to fund their home care needs in later life. By tapping into the value of your home, you can access a lump sum or regular payments that can be used to cover the cost of care
Here are some of the key benefits of using equity release to pay for care:
One of the most significant advantages is that you can continue to live in your home AEquity release schemes like a lifetime mortgage allow you to borrow money against the value of your home while retaining ownership.
The money you release through equity release is tax-free, providing you with the full amount to spend on your care needs without worrying about tax implications.
Equity release offers flexibility in how you access your funds. You can choose to receive a lump sum to cover immediate care costs or opt for a drawdown facility, allowing you to access the money as and when you need it.
With a lifetime mortgage, there are typically no monthly repayments to make. The loan, along with the interest accrued, is repaid when your home is sold, usually when you pass away or move into long-term care.
Many equity release plans come with a “no negative equity guarantee,” ensuring that you or your estate will never owe more than the value of your home, even if the housing market declines.
Equity release can provide financial freedom in your later years, enabling you to afford the care you need without relying on savings or the financial support of family members.
By using equity release to fund care costs, you can preserve other savings or investments you have, which might be earmarked for living expenses or as an inheritance for your family.
Equity release schemes are regulated by the Financial Conduct Authority (FCA), offering you a level of protection. Advisers must also be qualified and provide you with tailored advice to ensure it’s the right choice for your circumstances.
It’s important to consider the long-term impact of equity release on the value of your estate and any inheritance you wish to leave. Seeking advice from a qualified equity release adviser can help you understand the benefits and implications, ensuring it’s the right decision for your situation.
Equity release calculators are invaluable online tools designed to give homeowners an initial estimate of how much equity they could potentially release from their property.
By inputting basic information such as the age of the homeowner(s), the property value, and any outstanding mortgage or loan amounts, these calculators provide a quick and straightforward way to understand the amount of money that might be available through equity release schemes.
You can use the calculator below to estimate what you could receive.
Try Age Partnership’s equity release calculator and estimate how much money you could release from your property.
If you take out a product from Age Partnership, we will receive a fee for introducing you to them. This helps support the site and for us to produce more content.
While equity release can offer a practical solution for funding care in later life, it’s crucial to be aware of their potential risks and downsides.
Understanding these risks can help you decide whether equity release is the right option for you.
Here are some of the key risks involved:
One of the most significant risks of equity release is its impact on the inheritance you leave behind. The amount you owe grows over time, especially if you do not make any repayments, which can significantly reduce the value of your estate.
Equity release schemes, particularly lifetime mortgages, involve accruing interest on the amount borrowed.
This interest compounds over time, meaning the amount you owe can grow quickly, further reducing the equity left in your home.
You may face substantial early repayment charges if you decide to repay your equity release plan early. These charges can make it expensive to pay off the loan if your circumstances change.
Releasing equity from your home may affect your eligibility for means-tested benefits. Your extra income or capital could disqualify you from receiving certain benefits, impacting your overall financial situation.
Equity release may limit your ability to move or downsize in the future.
Although most plans offer a “no negative equity guarantee,” ensuring you never owe more than your home’s value, the specifics of your agreement may restrict your options to sell or move.
There are often upfront costs and fees associated with arranging an equity release, including advice, arrangement, and valuation fees. These costs can add up and reduce the net amount you receive.
The interest rates for equity release can be higher than those for traditional mortgages. Since the interest compounds over time, the amount you owe can increase rapidly.
Equity release schemes can be complex financial products that require a long-term commitment. It’s crucial to fully understand the terms and conditions and how they fit with your long-term care planning and financial situation.
Given these risks, seeking independent financial and legal advice is essential before proceeding with an equity release plan.
A qualified adviser can help you weigh the pros and cons, ensuring that equity release is the right choice for your specific needs and circumstances.
Equity release offers a way for homeowners over 55 to access the money tied up in their property without the need to sell or move out.
There are two main types of equity release products in the UK, and each can be used to pay for care at home.
The two options are Lifetime Mortgages and Home Reversion Plans.
Each has its own features, benefits, and considerations.
A Lifetime Mortgage is the most popular form of equity release.
This type of mortgage allows you to borrow money against the value of your home, while retaining ownership of it. Several types of Lifetime Mortgages are available in the UK, each designed to meet different needs and circumstances.
With an interest roll up mortgage, you receive a lump sum or regular payments, and interest is added to the loan over time. This interest compounds, meaning the amount you owe can grow quickly, but you do not have to repay until the house is sold, usually as part of your estate or when you move into long-term care.
With an interest payment mortgage, you can pay off the interest on your loan monthly, preventing it from compounding.
Some plans may allow you to pay off some of the capital, reducing the overall amount owed when the property is sold.
A drawdown lifetime mortgage is a flexible option that provides you with a pot of money that you can draw from as needed. Interest is only charged on the amount you withdraw, which can help to manage the loan’s growth over time.
Home Reversion involves selling a part or all of your home to a home reversion provider in exchange for a lump sum or regular payments, while giving you the right to live in your home, rent-free, for the rest of your life.
Unlike Lifetime Mortgages, Home Reversion Plans do not involve borrowing money, so there is no interest to pay. However, the amount you receive is typically less than the market value of the portion of your home sold.
You can sell only a portion of your property if you like. This allows you to retain some equity in your home, which can be passed on as an inheritance.
Selling the entirety of your home can provide a larger sum of money upfront, but it means you will not have any equity left to pass on to your heirs.
Both Lifetime Mortgages and Home Reversion Plans have their advantages and considerations. It’s important to seek independent advice to determine which option best suits your financial and personal circumstances.
Equity release is often considered a viable option for homeowners looking to unlock the value of their property to support their financial needs in later life.
However, it’s important to understand its limitations, especially concerning funding care home fees.
While equity release can provide a lump sum or regular income by borrowing against the value of your home, it’s primarily designed for individuals who wish to remain in their own homes.
This means that if the homeowner moves into a care home permanently, the equity release plan typically requires repayment, usually achieved by selling the home.
This condition poses a significant limitation for those considering equity release to fund long-term care home fees. Once the property is sold to repay the equity release loan, it may no longer be a source of ongoing funding for care home costs.
Some of the Best Equity Release Interest Rates as of 18 April 2024
The table below shows you some of the best equity release rates for lifetime mortgages from some of the leading equity release providers in the UK.
Provider Name | Product Name | Interest Rate | Type of product | Offers | ||
---|---|---|---|---|---|---|
Just | Just For You – J1 Green | 5.35% | Fixed | Free Valuation No application fee | ||
Just | Just For You – J2 Green | 5.40% | Fixed | Free Valuation No application fee | ||
Scottish Widows | FR1 | 5.50% | Fixed | Cashback Free Valuation No application fee | ||
Just | Just For You – J2 | 5.50% | Fixed | Free Valuation No application fee | ||
Standard Life | Horizon 200 Drawdown | 5.50% | Fixed | Free Valuation | ||
Standard Life | Horizon 200 Drawdown Fee Free | 5.55% | Fixed | Free Valuation No application fee | ||
Scottish Widows | FR2 | 5.57% | Fixed | Cashback Free Valuation No application fee | ||
Standard Life | Horizon 220 Drawdown Fee Free | 5.59% | Fixed | Free Valuation No application fee | ||
Standard Life | Horizon 240 Drawdown | 5.59% | Fixed | Free Valuation | ||
More 2 Life | Capital Choice Ultra Lite Drawdown 1 | 5.60% | Fixed | Free Valuation No application fee |
The equity release rates have been sourced by UK Care Guide from the Equity Release Supermarket website. These rates may have changed since this table was created and should be taken as indicative only. There may be other providers not listed on this table that could offer better deals. In addition, the providers and products noted may not be right for your particular circumstances. Therefore, they should only be taken as a guide, and we cannot guarantee their current accuracy. Please also note that we do not provide advice on or endorse any particular product listed here. The rate you are offered will depend on your individual circumstances and subject to lender approval. Therefore, we strongly recommend that you speak to an equity release adviser, who will be able to provide you with information on the latest rates that apply to you.
Speak To An Equity Release Specialist Today
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements and see what deals are available to you.
A study conducted in March 2024 by the UK Care Guide revealed that an increasing number of retirees are contemplating using equity release to supplement their retirement funds.
This survey, with responses from 1,803 individuals aged 55 and older, indicated that 40% are considering equity release to bolster their income during retirement. This interest highlights a growing awareness of the potential benefits of using your home equity as part of a comprehensive retirement strategy.
However, the study also highlighted significant concerns regarding the financial implications of equity release, with interest rates being a particular worry for 42% of respondents.
Saq Hussain, a financial expert at the UK Care Guide, said on the study’s findings, “Our research in March 2024 has underscored the pressing need for clear, accessible information on equity release as a retirement funding option.”
In an article by Tom Dunstan for FTAdviser.com, dated 28th February 2024, a study by Canada Life identified clearing an existing mortgage as the main reason homeowners are using equity release. 41% of respondents indicated this as their primary motivation.
This factor surpasses other reasons, such as home improvements, cited by 28%, planning holidays (20%), managing daily expenses (17%), and consolidating unsecured debts (16%).
The findings reflect a potential trend in which homeowners are increasingly prioritising clearing mortgage debts over other potential uses for equity release.
Sadna Zaman, a development manager at Canada Life, discusses the reasons behind homeowners’ decisions to access equity release, including making home improvements and coping with the rising cost of living. She highlights the flexibility and accessibility of equity release as financial solutions that allow homeowners to optimise their retirement living according to personal and familial needs.
In light of this research, Saq Hussain, Finance Editor at the UK Care Guide, provides insight, stating, “The recent findings by Canada Life reveal a significant trend towards mortgage clearance as a driver for equity release among older homeowners. This shift probably signals a more cautious approach towards financial management by people as they get older”.
An equity release mortgage allows homeowners to borrow money against the value of their home, while still maintaining ownership. When the homeowner passes away or enters long-term care, the loan and any accrued interest are paid back.
Equity release mortgages come in a variety of forms and have a number of repayment alternatives. For example, a drawdown lifetime mortgage allows you to choose whether to take the cash in a one-off lump sum, or in smaller amounts as and when you need it.
Some equity release plans allow for monthly repayments, which can help reduce the loan’s overall cost. However, a regular income, such as one from a pension, would be necessary for this.
The equity release process involves several steps, from eligibility assessment to application and completion. Understanding each of these steps, and the criteria required, is crucial for anyone considering equity release as an option.
The first step in the equity release process is determining if you are eligible. The basic criteria include:
You must be at least 55 years old for a Lifetime Mortgage and typically over 65 for a Home Reversion Plan.
Your property must usually be valued at a minimum of £70,000, although this can change between providers..
You must own your home outright, or only have a small mortgage left so that it can be paid off at the commencement of the equity release.
The property must be in the UK, and certain lenders may have geographical restrictions.
Once eligibility is confirmed, the application process involves:
An appointment with an equity release adviser to discuss your needs, the options available, and whether equity release is right for you.
A professional valuation of your property to determine how much equity you can release.
Independent legal advice is required to ensure you understand the equity release agreement and its implications.
Your equity release adviser will help you complete and submit your application to the chosen equity release provider.
If your application is approved, you will receive an offer outlining the terms of the equity release plan.
The final step in the process is completion, which involves:
Your solicitor will complete the necessary legal work, including securing the equity release provider’s charge against your property.
You will sign the equity release agreement, committing to the terms set out by the provider.
Once all legal work is completed and the agreement is in place, the funds will be released to you. You can either receive it as a lump sum, regular payments, or a combination of both, depending on the selected product.
The equity release process is comprehensive, requiring careful consideration and professional advice at each step. By understanding the criteria and the steps involved, homeowners can make informed decisions about whether equity release is the right financial solution for their needs.
Equity release can be a viable solution for funding care in later life, allowing homeowners to access the value of their homes without selling.
However, it comes with its set of considerations:
Equity release offers a way to maintain financial independence and quality of life in later years. By taking informed steps and seeking professional advice, you can ensure that this financial decision aligns with your long-term care and estate planning goals.
The UK Care Guide works in partnership with Boon Brokers, one of the UKs leading equity release specialists.
You can contact them on 0333 567 1607 , or use the equity release calculator to estimate how much you can borrow.
Call Boon Brokers on 0333 567 1607 to discuss your equity release requirements.
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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
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Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Saq is a financial expert and is responsible for the day-to-day running of the UK Care Guide website. Before taking on the operation of this site, Saq was a Director and the UK Head of DC Pensions, Benefits and Wellbeing at PwC. Saq is also a part of the steering group at the Living Wage Foundation, which has developed the UK’s National Living Pension standard.
Saq has regularly featured in the press, with examples including:
Where applicable, the adverts for Boon Brokers on this page have been signed off as a Financial Promotion by Boon Brokers Limited, to ensure that they are in compliance with Section 21 of FSMA. Boon Brokers Limited is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
The Age Partnership equity release calculator has been approved and provided by Age Partnership. Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432.