Is equity release right for me?

What is equity release?

You might have seen television or newspaper advertisements that tell people ages 55 and over that they can release some equity, or cash value, from their home now without having to sell or move. This is known as equity release and can sometimes be a good option, but because it involves the future of your house and your finances you need to carefully consider it.

Equity release is generally considered only suitable or necessary for those people who don’t have very much cash on hand but they do have a valuable asset, such as their house or flat. If you’re in this situation then equity release might be a good option because it would give you money up front while letting you continue to live in your home.

The most commonly used type of equity release is known as a lifetime mortgage. Through this approach you are borrowing funds against your own home’s value, and the lender will tell you the total amount that you will be able to borrow based on your age and your property’s value.

Some people who pursue equity release take what’s known as a home reversion scheme, through which you sell part or all of your property for less than its actual market value. You’ll live in the house for life and not pay any rent, but you will no longer own it.

For peace of mind, you can also check that any company you are dealing with is a member of the Equity Release Council (ERC).

What are the requirements to qualify for equity release?

As noted briefly in the prior section of this guide, equity release is generally only available to homeowners who are aged 55 or older, but other factors can play a role, as the charity Age UK says.
It’s important to review these conditions so that you can be aware of any potential hurdles to obtaining equity release for your primary place of residence. They are:
Age: This is the main factor that will determine whether or not you could pursue equity release, and this is where the minimum age threshold of 55 years old applies. But there are some lenders that might be willing to provide equity release for people aged 50 or older.
Property: Another crucial element is that your house, flat or other type of residential property must be located within the UK, and it must also be the main place where you live. Equity release providers will also want to know that the condition of your home is at least reasonable, and other factors can be important such as the property’s value and various other elements.
Family: It might be more complicated to secure equity release if you have family members that are living at the property, known as dependents. You might need to get their signatures on a waiver that would state that these dependents are aware that they will not have a legal right to stay in the home in the event that you relocate to a 24-hour care facility or if you die.

What are the benefits of equity release?

If you decide to get equity release then it will give you instant access to a significant amount of cash, which can be ideal if you are struggling with your finances.

You should never use equity release to get extra cash that you intend to spend on luxury or unnecessary items, because you run the risk of not having sufficient funds in the future to help pay for care home costs or other support you might need when aging.

Another benefit is that you can have access to fast cash without having to sell or move out of your home, so if you want to stay in your property it can be a good option.

What are the drawbacks of equity release?

Even though equity release allows you to stay in your home, you are at risk of being kicked out if you violate any of the terms of your contract with the lending company. Situations where this can happen include letting your house go into a state of disrepair — for example letting an infestation of Japanese knotweed take hold without trying to treat or otherwise mitigate it.

There are also some disreputable lenders who will trick clients into selling at reduced prices that don’t accurately reflect what a particular house or flat is worth.

And because of the way that equity release works, a part or all of your home will be sold once you go into residential home care or die. That means you won’t be able to pass the property on to any children or other people that you might want to name in your will.

What options are available for selling my property with equity release?

Even if you have equity release at your property, you can sell it, as Unbiased says. Should you want to sell, you will have to choose from one of the four usual ways for finding a buyer – selling via an estate agent, selling at a property auction, selling to a quick home buyer or selling without any assistance. There are pros and cons for all four approaches based on factors such as whether they charge fees and how long they take.
For example, when you sell your home on your own or to a no-fee quick buyer like LDN Properties then you will not have to pay any commission, which will reduce your costs. But if you choose to sell with an estate agent or an auctioneer then they will require that you pay them commission on the sale of your home, and this will be subtracted from the sale proceeds.
One helpful tip can be to make a note of your main goals when selling your home, including your ideal sale price, whether or not you can accept paying commission on the sale, and how fast you want to find a buyer. Then compare these aims against the information about all four options below and this should help in finding the one that best pairs with your needs.

Selling via an estate agent

There is not much effort that you will need to put into selling your home when using the services of an estate agent, as they’ll be responsible for most of the steps. They will produce a listing that features photographs of your property and describes its main features, and advertise this online, in local newspapers and in their office. Then they will organise viewings for potential buyers to tour your home, and hear offers on the property, aiming to get on to the exchange of contracts.
This can take a very long time and it might be many months or even more than an entire year before you are able to secure a buyer. So if you are looking for a speedy sale then you should review other options, for example getting in touch with a quick buyer like LDN Properties, where the entire timeline for selling should only be a few short weeks from start to finish.
One problem that can occur when selling this way is that someone can make a legitimate offer to buy you home but then change their mind and cancel it, making the sale collapse. This will require that you start over with looking for a buyer, delaying a sale much longer. And the person that rescinded the offer won’t face any penalties if you have not yet exchanged contracts.
A further drawback of selling through an estate agent is that they will charge you commission if they manage to find a buyer for your property. This is usually charged a rate from 1.15 percent to 1.40 percent of a home’s sale price, but may be above or below this range. The will cause your overall expenses to rise because it will be subtracted from the eventual sale proceeds.
Beware also that some estate agents might try a sneaky trick of giving you an impressively high quote for the price at which they think you property can sell, even if they secretly understand that it will only get offers at a much lower value. They do this to convince you to sell using their services, as they’ll benefit from charging you commission if they find a buyer for your home.
You can prevent falling for this by first asking many estate agents to give you a free, no-obligation price quote for selling your home, and then follow this by looking at property sales websites and writing down the current and past sale prices of homes similar to yours. Then calculate the average of all these values and this should show you a much better rough estimate of the price at which you might be able to sell your flat or house.

Selling at a property auction

You could consider trying your luck with an auction, where people will have the opportunity to place bids of increasing value on your home, and the top price at the time the auction ends is deemed the winner and therefore the person that will be buying your property.
The auctioneer will ask you to choose a reserve price, and this is the cheapest price at which you are open to selling your property. You must select a reserve price that is designed to produce a profit from the sale, even after paying the auctioneer their fee, otherwise you might only sell around the price you paid for the home originally, or even worse sell at a loss.
This is not the most rapid way to sell a home because there is a fair amount of waiting involved, starting with many weeks or months between the day that you opt for selling this way and the day on which the auction is held. If your home sells at the auction, the buyer then has about a month to complete their required tasks to finalise the purchase, such as signing legal papers, so this will add even more delay to your overall selling timeline if you decide to use this method.
Some auctioneers may be open to setting a shorter deadline for the buyer to finish their mandatory steps, which can help with reducing the overall selling timeline. But note that other auctioneers may give the buyer even more than a month, extending a final sale even further.
And you will also have to pay commission to the auctioneer if they manage to sell your home. You’ll often find this is charged at about 2.5 percent of a property’s sale price, and this will be deducted immediately from the auction proceeds, therefore adding to your expenses.
It can be worth asking whether the auctioneer will reduce how much in commission they want to charge you, or if they can make the buyer pair part of your costs, because these are two ways that you can lower your costs. Just beware that other auctioneers might charge an even higher rate of commission than 2.5 percent, which would make selling this way even more expensive.