Equity Release Age Limit 2022 Rules
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What is the equity release age limit? This guide will quickly recap on lifetime mortgages and home reversion plans before discussing the minimum and upper age limit to release equity in the UK as a senior homeowner. With the information below, you’ll know if you qualify for lifetime mortgages based on your age – and other options in case you don’t.
What is equity release?
Equity release is a way for older homeowners to access some of their equity in their home as a drawdown or lump sum. The difference between equity release products and a home equity secured loan is that equity release does not require the homeowner to make any monthly repayments. The loan is instead repaid when they die from the sale of the property from their estate. If the homeowner leaves the property to go into long-term care, the home is sold at this point to repay the debt.
To work out how much equity you have in your property, you must subtract any outstanding debt attached to the property (such as a mortgage or secured loan) from the value of your home. With equity release plans, you can take out 60-80% of this amount at most depending on your age and the property.
There are two ways to release equity in the UK, either by using a lifetime mortgage or a home reversion plan. Both of these methods are fully explained shortly. You should only consider these products from equity release providers that are authorised and regulated by the Financial Conduct Authority.
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Why do people use equity release?
Equity release is used as a way to help fund general living expenses throughout retirement or to pay for big purchases, such as home renovations or round-the-world cruises. Some elderly people decide to take out an equity release plan to help them pay for private care services and avoid needing to go into residential care facilities.
Others may decide to release equity and gift the money to their family members who may need help getting on the property ladder or to start a new business. The benefit of this is you get to see your money put to use while you’re still around.
What is the catch with equity release?
As long as you receive professional equity release advice there should be no catch with your plan. You should be fully informed about the agreement and long-term costs. However, many people consider the ‘catch’ with equity release to be the expensiveness of these loans over many years, especially after decades.
With a lifetime mortgage or home reversion plan, the amount you pay back from your estate can be more than double, sometimes even triple, the amount you borrowed. This significantly puts a dent in any inheritance you planned on leaving behind.
How does equity release work?
As alluded to earlier, there are two types of equity release called a lifetime mortgage or home reversion scheme. They both ensure the lender makes a profit on the agreement, but they do this without asking for monthly repayments and they do it in very different ways:
- Lifetime mortgages
With a lifetime mortgage, the homeowner takes out a lump sum or drawdown of their home equity and agrees to be charged a fixed rate of interest each month. The interest doesn’t need to be repaid, although you can volunteer to do so and keep the debt down. Any interest that accumulates simply gets added to the total debt, which must be paid back when the home is eventually sold. Depending on how long you have the lifetime mortgage for, this can become expensive.
- Home reversion plans
Home reversion plans can also be taken as a lump sum loan or drawdown loan, but no interest is ever charged. The lender will request that the homeowner agrees to give them a percentage of the future sale proceeds in exchange for the equity loan. They make a profit because the amount you have to give up in the future can be double or even triple the amount you receive. And if the property increases in value, the lender’s profit from the deal is even bigger.
Is there an age restriction on equity release?
Lenders apply age restrictions on using equity release plans to prevent younger homeowners from applying. The individual lender will state what the age restriction is to apply for their lifetime mortgages or other equity release schemes.
Age restrictions are in place for a number of reasons but mainly to protect the lender from risks and ensure they make a profit on the credit agreement.
Read on to find out what is typically the minimum age for equity release.
Who qualifies for equity release?
To qualify for equity release schemes you must meet the lender’s applicability criteria. This means meeting the age requirement and owning a home worth at least around £75,000 with no existing mortgage (or a very small one you plan to pay off with the loan you receive). The property you want to release equity from must be your main residence rather than a holiday home or rental investment.
Can I release equity at 50?
To apply for lifetime mortgages and home reversion plans, you’ll almost certainly need to be at least 55 years old. 55 is the standard minimum age for equity release. Therefore, anybody who is under 55 will not be able to get an equity release plan just yet.
Is equity release only for over 55s?
Equity release is predominantly for senior homeowners over the age of 55. However, some lenders may require you to be even older. There may be lifetime mortgages and other plans exclusively available to people over the age of 60 or 65.
Do both partners have to be over 55 for equity release?
If you own a home with a partner then both homeowners will need to apply for equity release together. If one of the pair does not meet the age requirement then you will not be eligible to apply. The youngest homeowner must meet the minimum age requirement.
Some people consider getting around this issue by removing the unqualifying homeowner from the official property ownership. However, this is extremely dangerous because the property would have to be sold when the sole owner dies or moves into long-term care, leaving the surviving partner homeless.
What is the maximum age for equity release?
There is no upper age limit to take out an equity release plan. As long as you meet the minimum equity release age then you can apply.
The older you are when you apply the better deal you can usually get. This is because logic suggests that older people have a shorter life expectancy than younger people, and therefore the lender should get a return on the deal quicker.
This is what has prompted Martin Lewis to state that equity release can be a good option in some cases, but it should be done as late as possible by taking out as little equity as needed.
The Equity Release Council
The Equity Release Council is a voluntary membership body for any company working in the equity release sector. It invites financial advice companies to join, as well as any lender offering lifetime mortgages. Lenders that are members are more attractive to homeowners considering equity release because they must abide by rules and guidelines designed to keep them protected.
For example, the Equity Release Council states that lenders must:
1, Guarantee homeowners will never be evicted and their home sold unless they move into care, lie about living there or commit fraud on their application.
2. Guarantee that homeowners will never need to pay any debt that exceeds the sale proceeds of their home, also known as the negative equity guarantee.
3. Allow homeowners to move to a suitable property when desired, as long as the property can just as easily be sold.
These are just three reasons why homeowners should only consider getting a lifetime mortgage or home reversion plan from an ERC member.
The benefits of equity release
The benefits of using an equity release plan are:
- The money you receive can be a lump sum or drawdown
- You can spend the money on whatever you like
- You do not have to make any monthly repayments
- You can opt in to make interest repayments that you are comfortable with to keep the debt lower
- You cannot be evicted in normal circumstances
- You do not pay rent to keep living at the property
The disadvantages of equity release
The biggest disadvantage of using an equity release plan is the overall cost. No matter which of the types of equity release options you go for, having them could easily result in paying back double or more to the lender. For some people with nobody to inherit their estate, this will be of no concern at all. But for those with children relying on inheritance, this can make the decision extremely difficult and stressful.
Another disadvantage of equity release is that plans usually come with excessively high early repayment charges. This should be expected because an equity release plan is usually for life.
Is equity release a good idea?
Equity release can be a good idea in certain situations. Those that do not have children to pass on their estate will find it an easier decision than those with children relying on inheritance in the future. To get a personalised assessment and consider alternative options first, it is essential that you get independent financial advice.
Do you pay tax on equity release?
No income tax or Capital Gains Tax (CGT) is due on the money you receive as part of a lifetime mortgage or other equity release plan. The money is officially a loan and money received as part of a loan is never subject to any tax. It can feel as though the money is not a loan, and something like you have sold part of your home in advance, especially considering there are no monthly repayments due. But equity release is always a loan and therefore incurs no taxation.
There can be inheritance tax implications when taking out equity release – for better and worse. You may want to speak with a financial adviser to uncover how equity release can mitigate inheritance tax for your beneficiaries, and how it could make them have to pay more.
Can releasing equity affect state benefits?
Releasing equity does not affect state benefits that are not means-tested, such as your standard state pension. But if you receive means-tested benefits, meaning benefits that are given based on your income and savings, then equity release could have implications.
For example, Universal Credit is only available to people who have less than £16,000. By taking out a lifetime mortgage, you are likely to receive a lump sum and exceed this threshold, ending any entitlement to receive Universal Credit for any reason.
A more relevant example to older homeowners is pension credit payments. At the time of writing, these pension top-up payments are decreased by £1 for every £500 you have above £10,000. And if you no longer receive pension credit payments, you may consequently lose access to a council tax reduction.
So, what can you do about it?
If you plan to spend the money on a big purchase as soon as you receive the money, you may quickly be eligible once again. Another option is to choose a drawdown equity release plan or lifetime mortgage. This way, you only access smaller amounts of money that do not exceed the threshold for your means-tested benefits. You should seek independent financial advice for tailored support on this matter.
Can you be denied a lifetime mortgage?
It is possible to be denied a lifetime mortgage if you have severely bad credit, such as a CCJ or Charging Order. But the more common reasons for getting rejected are to do with the property itself. Your property may not conform to building regulations or it might be considered a flood risk. These are just some of the many reasons why your equity release plan could fall through.
Luckily, there are some alternative options…
Equity release alternatives
If you do not qualify because you do not meet the minimum age for equity release, you could wait until you do qualify before applying. But remember, in general it is better to wait as long as possible to mitigate the interest accumulated on your lifetime mortgage. Others may be put off by the thought of not passing on their family home to loved ones. In any case, there are some alternative options to explore:
The most common alternative solution is to downsize from your current property and create a small nest egg. Selling your bigger and more valuable home and then buying a less valuable one will create a pool of money that can fund your retirement needs. Another alternative is to consider renting out part of your home or a room in your house to create another income stream.
The equity release age limit (quick recap!)
To quickly recap, equity release schemes are only available to people over 55 years old, although you may need to be over 60 or 65 with some lenders. If one of the homeowners meets the age restriction but the other is too young, then both homeowners will not be allowed to apply until the youngest homeowner meets the age requirement.
There is no upper age limit on equity release, but it can be beneficial to take out a lifetime mortgage as late as possible to avoid accumulating interest.
Need more lifetime mortgage content?
If you want to read and research more about lifetime mortgages in the UK, you’re already in the right place. MoneyNerd has plenty of guides and articles discussing all methods of equity release in detail. We answer the internet’s most asked questions with clear language and simple examples. Check out our other content today!