Equity release can help you raise some much-needed funds, but what can be affected by equity release? Our experts have put together some information about what equity release can have an impact on and what you should consider when looking into releasing equity from your home.
Understanding equity release and its impact
Equity release is a way of releasing the equity stored in your home to use the cash here and now without needing to move out. There are two main types of equity release, a lifetime mortgage, and home reversion plan. The tax-free cash from equity release can be available as a single lump sum or in a drawdown facility to withdraw from at a later date, depending on the plan you choose.
A lifetime mortgage is a loan secured against your home and will need to be repaid when you pass away or move into long-term care. You will be charged interest on the loan, but you will not be required to make payments towards the loan unless you choose to.
In comparison, a home reversion plan allows you to sell part, or all, of your home at a discounted price to a provider and in exchange you will be able to remain in the property “rent-free” until you pass away or move into long-term care.
Equity release can have an effect on a few things including the inheritance you wish to leave your family, some benefits you might be currently eligible for, and even the relationship with your family. Our specialist equity release advisers will work closely with you to explain the impact of equity release and what this might look like for you.
Things to consider about equity release
Equity release can not only have an effect on means tested benefits, Universal Credit, Pension Credit, and Council Tax Reduction, but can impact a wide range of things you might not have considered including the inheritance you leave for your family and your family relationships.
Our equity release advisers will discuss if equity release is right for you and your circumstances, whilst helping you weigh up if there are any alternatives that are more suitable for you. Get started today with our free online equity release calculator.
How equity release affects means tested benefits
An Equity Release plan, such as a Lifetime Mortgage or Home Reversion, can increase the amount of money you have saved, which can take you over the threshold for certain means-tested state benefits.
Some means tested benefits can be affected because you now have more money in your bank account, the savings thresholds for these benefits are subject to change, however your Bower Home Finance adviser will be able to check this for you through means tested benefits calculations.
The funds released for paying off a mortgage or secured loan will not affect benefits, as the funds will be paid directly to the lender. However, if the cash is kept in savings, it may take you over the Government limits, potentially affecting your benefit entitlement. You can check your benefit entitlement on the Government’s website.
Read more about what benefits can be affected by equity release.
The effect of equity release on your pension
If you have a private pension, this will remain unaffected if you choose to release equity from your home. This is also the case for your state pension since they are not means tested. They are also not taxable, thereby excusing you from tax payments. Your state pension amount is based on how much you have contributed to national insurance throughout your life, and equity release does not affect it.
However, if you currently receive pension credit, your eligibility may be affected as this is a means tested benefit. Your adviser will be able to discuss in detail what this will look like in your circumstances and help you evaluate if equity release is the right option for you.
Read more about how equity release can affect your pension.
How family relationships are affected by equity release
Whether your family are here to help, or they have raised some concerns about using financial products to raise the funds you need, equity release can affect your family relationships.
Your family are there to look out for you which is why they might express their concern about equity release, by involving your family in conversations about equity release, our specialist advisers can clearly discuss your options and answer any questions and concerns they might have.
At Bower Home Finance, we want what’s best for you which is why we will only recommend equity release if we believe it is the right solution for you and will discuss any alternative options with you if they are more suitable.
Can equity release impact your savings?
Equity release can have a positive impact on your savings, depending on how much you release and how you choose to spend it. Most people already have a rough idea on what they wish to use their equity release for, often choosing to put some money away for an emergency fund.
However, if you are entitled to means tested benefits and you plan on building your savings, you’ll need to check the rules surrounding savings, if your savings exceed the threshold, your eligibility may be affected.
The impact of equity release on credit reports
After you’ve spoken with an equity release specialist and it has been recommended that equity release is suitable for your circumstances, your adviser will find and recommend a specific equity release plan.
Equity release will usually not have an impact on your credit score and report as it will not show as a standard loan, and you won’t be obliged to make monthly repayments.
If you are using equity release to consolidate existing debts, this could have a positive impact on your credit score and report as you will be clearing previous loans and debt. Some equity release providers will insist on using some of your equity release to clear existing debt if you proceed.
Your equity release adviser will be able to discuss this in more detail and how this might affect your personal circumstances.
How does Equity Release affect care costs?
Using an Equity Release payment to fund the cost of care is a popular reason many homeowners choose to take out a plan. You could potentially release a lump sum from your home which could then be used to make adaptations in the home or help fund any future care.
The adaptations you might find useful on in your home depend on your needs, this can include stairlifts, ramps and shower rooms. If the time comes that you’ll need to move into residential care, your equity release will need to be paid off when you move out. This is typically done through the sale of your home and any remaining funds left over from paying off your equity release is yours to use as you wish. However, if you proceed with equity release jointly with your partner and you move into long term care, your partner will not need to move out and can remain in the property.
If you are considering equity release to fund home adaptations, your adviser will be able to discuss some alternatives, including checking your eligibility for charity assistance and government grants to help with the cost.
Will equity release affect inheritance?
When releasing equity from your home, the value of your estate will be reduced. If you choose to use a lifetime mortgage to release equity from your home, it will need to be repaid, in addition to any rolled up interest, when you pass away or move into long-term care. This is typically done through the sale of your home, however, if your family can afford to pay this your home will not need to be sold.
Equity release reduces the value of your estate and therefore can impact the amount you wish to leave as inheritance for your family. Some plans will allow you to ringfence a portion of your estate to leave for inheritance. This means part of your estate will be protected from being used to pay off your loan.
Speak to your local equity release adviser today to learn more about the impact of equity release on inheritance.
Can you be refused equity release?
There are some reasons why a person may be refused Equity Release, including how they intend to spend the money. Responsible lending and advice obligations mean that providers will not lend to you if you are planning to use the money for anything that is considered high-risk, such as cryptocurrency or other investments.
You may also be rejected if you are in an undischarged bankruptcy or an individual voluntary arrangement (IVA). There are also rare occasions when the property itself will be rejected as it is not suitable for the lender; this might be down to it being a non-standard construction, foam insulation being used and any property restrictions or commercial use.
Can I still release equity if I have a medical condition?
Enhanced Lifetime Mortgages are a type of equity release, designed to for individuals aged 55 and over with certain lifestyle factors or health conditions. Successful applicants for enhanced lifetime mortgage are typically able to release more equity from their home with a lower interest rate.
If you choose to release equity with an enhanced lifetime mortgage, your loan, plus any accrued interest, will be repaid when you pass away or move into long-term care.
Read more about Enhanced Lifetime Mortgages.
Equity release advice you can trust
Whether you’re of pension credit qualifying age and want to understand the effects of taking equity release or want to ensure your family are involved throughout and their inheritance is protected. Our equity release specialists are on hand to help guide you through the equity release process and answer any questions you and your family might have.
Get started today with our free online equity release calculator.
