Equity release - State benefits

Equity release plans may affect your entitlement to state benefits. Always double-check with an advisor whether a plan will affect any benefits you might receive. If you were incorrectly advised regarding the potential effect of an equity release plan on your state benefits, the plan may be unsuitable for you and may have been mis-sold.

Equity release is a way of getting hold of the money tied up in your house. Equity is generally only available if you’re over the age of 55, and you can take the equity (i.e. the money) you release as a lump sum or as multiple payments.

Equity release schemes can be a heavy commitment – if you change your mind on an equity release scheme or have to move to a new house, you could find that your equity release scheme becomes a problem.

There are two main forms of equity release plan:

Lifetime mortgages

If you’re taking out equity release, you’re most likely to be using a lifetime mortgage plan to do so.

This is where you take out a mortgage secured on your home, keeping full ownership of the property. You can either make repayments or let the interest build – the full loan has to be paid back when you die or if you have to go into long-term care.

If you have a lifetime mortgage, you typically won’t have to make any payments while you’re alive – but you should be careful, as any unpaid interest is added to the loan, meaning your mortgage debt can increase very quickly!

Daily interest is calculated and charged monthly on the loan, and will be paid off from the value of your estate when you die. 

However, if there isn’t enough money left in your estate to pay off the value of your loan, your family and other beneficiaries will have to repay any extra!

To avoid this, you should make sure that you get a “no-negative-equity guarantee” from the equity release firm. This means that you’ll never have to pay back more than the value of your home. Most lifetime mortgage plans include this guarantee.

With a lifetime mortgage, you can normally borrow up to 60% of the value of your home – this also depends on your age, with the amount you can borrow increasing with your age at the time you take out the plan.

Home reversion

With a home reversion plan, you agree to sell all or part of your home. You’ll get either a lump sum or regular payments and can continue living in your house – but you have to maintain and insure it. At the end of the plan, your property is sold and the home reversion plan is paid off. You can set out some of the property to be held as inheritance for your family or beneficiaries. 

Home reversion plans normally pay out between 20% and 60% of the value of your property. 

Some providers insist that you’re at least 60 before they’ll let you take one out. 

Always check the level of maintenance you’ll be responsible for, check that you have the right to move to another property, and check that the plan has a “no-negative-equity guarantee” – meaning your family and beneficiaries won’t have to pay more than the value of your loan if there isn’t enough money to cover it.

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