Equity Release Guide
'For Retired Homeowners'

Advantages & Disadvantages

• Lifetime Mortgages
• Home Reversion Plans / Schemes

Lifetime Mortgages

• No repayments because interest rolls up on the loan
• Interest only payments so loan remains the same
• Drawdown versions with or without interest repayments.
• Home income plans where the loan buys a lifetime income annuity

Lifetime Mortgage Advantages

• Property Ownership is retained
• Choice of amount required
• Drawdown in stages reduces interest charges
• Freedom to spend capital as required
• Can reduce inheritance tax for larger estates

Lifetime Mortgage Disadvantages

• If the money is spent there will be less to leave beneficiaries
• If interest is rolled up there will be even less for beneficiaries
• Interest rates are usually higher than normal mortgages
• If repayments are required borrowers must be able to pay interest
• There may be large penalties to repay the mortgage early
• There may be a loss of means tested benefits and grants

Home Reversion Plans

• A home reversion plan is the sale of all or part of a residential property.
• The owner then becomes a life tenant of the reversion
• The amount of the purchase price increases for older ages
• Percentage of valuation is based on the youngest age for couples.
• Purchase price is much less than value as investors sacrifice rent
• Reversion investors risk falling property values
• Conversely reversion investors benefit from increasing property prices
• A lifetime lease is granted to the former owner
• The lease is often based on a tiny nominal rent for legal reasons
• Obligations to maintain the property are similar to a mortgage

Home Reversion Plan Advantages

• Cash available can be far greater than lifetime mortgages
• Sometimes the option to pay a higher rent for a larger cash sum
• There is little impact on the occupier’s use of the property
• Funds released may be used for any purpose
• Full reversions can reduce inheritance tax when applicable
• A part reversion enables partial ownership

Home Reversion Plan Disadvantages

• Loss of ownership in part or total
• Instant loss of estate value as the purchase price is less than valuation
• Risk to the estate on early death as reversion investor profits quickly
• Loss of entitlement to home improvement grants and state benefits
• Obligation to insure and maintain property similar to a mortgage
• The arrangement is not reversible unless there is a buy back clause

Equity Release Advice

• Advice on a products from one provider
• Advice from a limited number of companies
• Independent advice on products from the whole market

Advisers Remuneration

• Fees
• Commission
• Both Fees and commission

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