I want to raise money to give my family, is equity release an option?


I am a 72 year old who owns a £650,000 mortgage free house, with a healthy pension pot generating an income of over £30,000 a year.

It means I have a very comfortable standard of living that allows me to travel a lot and eat out regularly.

I would like to donate some money to my children while maintaining this standard of living, is releasing equity an option? SR

Releasing equity means that you borrow against the value of your home or sell part of your home

MailOnline Real estate expert Myra Butterworth replies: You have clearly built up a financially comfortable nest egg with which you can fully enjoy your retirement.

If you want to release some equity to your adult children, for example to help buy or improve a home, or to help them with grandchildren’s expenses – for example with private school fees – one option is equity release.

It can fit well in exactly these kinds of scenarios, according to experts, but you also need to know how the costs can add up.

Equity release loans often involve paying no interest on the loan and instead rolling it up, with the debt to be settled upon death or the sale of the property. The compounding effect means that debt will grow over the years to more than the initial amount borrowed.

Tom McPhail, of financial services consultancy The Lang Cat, said: “For someone in this sort of situation, whose priority is to maintain their current standard of living and also to free up some capital now for family members, releasing their own be ability. a very effective solution.’

We speak with a broker to see how this might work and what advice they suggest if you’re looking to get the money you need.

Ian Meadows, of Later Life Lending at broker SPF Private Clients, replies: Equity release would certainly be available to you. To determine the exact amount you could secure and the operation of the contract, you would need to conduct a full fact-finding review, going over all of your personal information and your short, medium and long-term goals.

For those over 55 looking for a lump sum or income supplement, it may be possible to use some of the home equity. There are three main ways to do this:

1. Lifetime Mortgage

This allows you to borrow an amount of money that is secured against your home. You can pay all or part of the interest or you can choose to add it to the loan. The loan and any interest are repaid when you move in or die.

2. Return home arrangements

You sell a percentage or your entire home below market value and may live there rent-free until you move into a care facility or die. At this point, your home has been sold and the buyback company gets its share of the proceeds. We don’t advise on housing rollback schemes as they only represent about 1 percent of the market and we don’t think they’re particularly good.

3. Pension interest-only mortgages

It allows you to borrow a fixed amount secured against your home, pay monthly interest on the loan, and repay the debt when your home is sold.

The first two are classified as ‘equity release schemes’. The third is a relatively new product aimed at providing mortgages to older borrowers. With all three arrangements you can release money from the equity you have built up in your home without having to move.

Clearing equity means borrowing against the value of your home or selling part of your home, both of which can be costly in the long run.

In this case, you own the property and are 72 years old, which, combined with the value of the property, will determine the loan size and interest rates available to you on lifetime and amortization-only mortgages.

Using the equity in your home can help you raise a lump sum or supplement your retirement income

Using the equity in your home can help you raise a lump sum or supplement your retirement income

Equity release: How it works and advice

To help readers considering equity releases, This is Money has partnered with Age Partnership+, independent advisors specializing in retirement mortgages and equity releases.

Age Partnership+ compares deals across the market and their advisors can help you determine if equity release is right for you – or if there are better options such as downsizing.

Age Partnership+ advisors can also see if people with existing equity release deals can save money by switching.

You can compare equity release rates and calculate how much you could potentially borrow with the This is Money’s and Age Partnership+ comparison tool.

For more information, read our guide: Ten things to consider before releasing shares

Life course mortgages and only interest-only retirement are priced in terms of “loan to value,” meaning that the percentage of the value of the property that is borrowed determines the interest payable.

We always discuss with clients that the amount of the loan and the interest rate should not be the only consideration when determining the most suitable mortgage lender and product.

Future flexibility and consideration of prepayment charges – both their type and duration – may be relevant factors, as well as ensuring that there are appropriate exemptions from them in certain circumstances, such as relocation or long-term residential care.

Lenders can provide higher loan amounts than would be paid to someone who is expected to live longer. If you are retired due to ill health, have a serious medical condition, smoke or are overweight, you may qualify for what is known as an elevated lifetime mortgage.

Depending on the customer’s other investments and the size of his pension fund, an interest-only mortgage could possibly yield the largest lump sum payment for him.

With an interest-only mortgage, he would have to pay off the full interest payments monthly.

The maximum amount he could get from a buyback scheme would be £312,000 and that would mean selling 100 per cent of his property. As mentioned above, we do not advise on return plans as we do not consider them to be a particularly good product.

On a standard lifetime mortgage the maximum he could get would be £254,000, if he were close to reaching his 73rd birthday this could rise to £260,000.

There are pros and cons to each of the options and it is essential to seek advice from a specialist. I would always recommend an exploratory meeting with a qualified independent advisor who is a member of the Equity Release Council. because they can discuss the viability, logistics and associated costs of releasing equity.

> Read our guide: Ten questions to ask when considering a stock release