Hallmark Independent Financial Services

Equity Release (Regulated by the FSA)

If you’re an older homeowner with little or no mortgage and you’d like to increase your income or have access a cash lump sum, then you might wish to consider releasing some of the equity in your home via a Lifetime mortgage or Home Reversion Scheme.

• Lifetime Mortgage

Lifetime mortgages are generally available to homeowners over the age of 60 although some do start at age 55. You take out a mortgage on your property and the amount raised is paid to you either as a cash lump sum, income, or both. Interest is charged in the normal way but no monthly repayments are required. Instead, the interest charges “roll up” which means that over time the mortgage increases. Eventually, the original amount borrowed plus all the accumulated interest is repaid to the lender when the house is sold, either after your death, or, should you move into long-term care. Any surplus value in the property then falls into your estate.

• Home Reversion

Home reversion schemes generally start at age 65, although often age 70 for joint borrowers. Home reversion doesn’t involve taking up a mortgage, instead you sell your home, or a proportion of it, to a home reversion company in return for a cash lump sum or income or both. However, the amount you receive won’t fully equate to the value of the sale. For example, if your property is worth £200,000 and you sold it to the scheme for the maximum cash sum, you won’t receive £200,000. Similarly, if you sold 50% of the property to the scheme you won’t receive £100,000. This is because you’re not charged rent whilst you remain living in the property. When you die and the property is sold, the reversion company takes its share of the proceeds. So if you originally sold 50% of the property to the scheme then they’ll take 50% of the final selling price and any surplus falls into your estate. However, if you originally sold the whole of property to the reversion company, they take the whole of the sale proceeds, even if the value of the property has risen significantly.

• History – SHIP

Equity release schemes have been around for a long time and many people still remember the terrible problems they caused in the 1980s and 90s. But this has all changed now and can never be repeated.

The problem back then involved soaring interest rates and falling property values. Eventually lenders asked borrowers to begin making monthly repayments on their lifetime mortgages which of course they couldn’t afford. Worse, was when the borrower died and the mortgage balance was greater than the sale price of the house, known as “negative equity”. The resulting shortfall subsequently fell as a liability to the estate, which means the deceased’s family. Now, however, lifetime mortgages are regulated by the Financial Services Authority (FSA) and all lifetime mortgage providers are members of Safe Home Income Plans (SHIP).

SHIP's code of practice guarantees that you or your estate will never owe more than the value of your property and that you will be allowed to live in your property for the rest of your life, or until you have to go into residential care. Plus, SHIP’s “no negative equity guarantee” means that regardless of what happens to house prices or interest rates, you will never be asked to begin making monthly repayments or forced to sell your home, nor will your children ever be liable should the sale of your property not be sufficient to repay all the mortgage borrowing.

• Careful and Considerate Planning

Contemplating an equity release can be quite daunting which is why we encourage you to involve your family in these dealings. We also insist, as do the lenders and scheme providers, that you appoint your own solicitor to act for in these dealings. Equity release can also have a major impact on your estate which is something we’ll cover with you.

• What will you have to pay us for our Equity Release services

A fee of £250 is payable on or before completion. We will also be paid commission from the mortgage lender or home reversion company that buys your home.

• How to contact us

If you would like to speak to us about Equity Release, or to arrange an appointment, please call us on LoCall number 08456 120 375 or 01761 411 775 or email us your contact details with a preferred contact time by clicking here.

We look forward to hearing from you.