The Best Equity Release Brokers – Overview & Tips
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Everything you need to know about equity release brokers can be found in this MoneyNerd guide. Below we revisit the fundamentals of a lifetime mortgage and home reversion plan before taking a look at some of the general public’s most asked questions, including queries about equity release brokers.
What is equity release and who can apply?
Equity release is a term used to describe two possible loans secured by your home. However, these loans can only be accessed by seniors who already own their property with no outstanding mortgage or other secured property debts, and they must be at least 55 years old. The property may even need to meet a minimum valuation of around £80,000.
An equity release loan is unique because it provides the homeowner(s) with a tax-free lump sum or drawdown facility but does not demand any monthly repayments on the principal loan amount or interest (if applied). The debt still has to be repaid, but that only comes around when the homeowner dies or after they leave their home to go into long-term care.
Once they do die or move into care, the homeowner’s property will be sold and the money raised is used to pay off the total owed, which at this point will be much more than the loan amount and possibly a fixed percentage of the property sale proceeds.
There are two types of equity release loans in the UK; these are called lifetime mortgages and home reversion plans – and we explain them both in detail shortly.
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Why do people use equity release loans?
Equity release loans are used for lots of different reasons and sometimes a combination of reasons. In general, because equity release is only available to seniors with no monthly repayments, it is used as a way to boost retirement income and improve the quality of living in later life. It could cover generic expenses or it could be used for holidays, home improvements, private medical treatments and much more.
Some people decide to use the equity release loan by giving it to a son or daughter to help them buy their first home and secure a better residential mortgage deal in the process (through a larger deposit).
What is the catch with equity release?
The catch with equity release is that these loans are usually very expensive to repay, meaning much less of your wealth is transferred to loved ones when you pass away. The amount that gets taken from the value of your property when it is sold can be quite easily x2, x3 or more than the initial loan amount.
This is what makes equity release a difficult decision for most people with children. Those without children are more likely to use a lifetime mortgage or home reversion plan.
Equity release lifetime mortgage explained
Lifetime mortgages are the most used method of equity release and are more widely available. They gradually increase your debt by adding a compounding interest rate to the loan amount. This interest rolls up and does not need to be repaid each month, although you can sometimes volunteer these repayments.
By allowing the interest to keep building over many years, the amount you end up paying back through the property’s sale proceeds (after you die or move into care) is much more than the amount you received. For example, if you release a £65,000 lump sum on a 6.4% interest rate, the total owed after 12 years exceeds £135,000.
If you are unsure how much different lifetime mortgages will cost you over different periods of time, you can use an equity release calculator to help.
Home reversion plan explained
Some equity release providers offer home reversion schemes instead. These are loans with no interest rate applied. But they will still cost you a lot to repay. The homeowner receives a lump sum payment and in return allows the lender to take a fixed percentage of their property value when it is sold. However, the amount you loan will be dwarfed by the projected amount of the property sale money the lender becomes entitled to.
For example, you may release 20% equity from a £150,000 property (£30,000). But in return for this loan, the lender will request 75% of the property’s future sale value. If your home went up in value by 10% come the time it needs to be repaid, it means the £30,000 loan will cost almost £124,000 to repay.
What is the average interest charged on equity release?
The average interest rate charged on lifetime mortgages is around 3-7%, although you will find slightly lower rates with some lifetime mortgage lenders. The rate you are offered will be determined by a wide variety of factors, such as your age, property value, surveyor reports, the loan amount and the lifetime mortgage provider itself.
Why is equity release a good idea?
Equity release can be a good idea for some people as long as they fully understand the agreement they are getting into and the overall costs of their loan. People without children relying on inheritance will usually perceive equity release as a better idea. You will need financial advice before making an application.
Why is equity release a bad idea?
Equity release can be a bad idea if you have an alternative method of funding your retirement or any other purpose of needing finance. To explore alternatives to equity release, such as downsizing instead, you need to speak with an equity release financial adviser.
Do I need a financial adviser for equity release?
You need to get financial advice before applying for equity release. Some lenders will only accept applications from an independent financial adviser to ensure you have received adequate advice first, while others will offer the services of an in-house adviser.
How to choose an equity release adviser
It is better to get financial advice from a company that has worked in equity release previously or specialises in this niche area of credit. You might want to prioritise advisers who are a member of the Equity Release Council, which also guarantees that the company is authorised and regulated by the Financial Conduct Authority.
What is the Equity Release Council?
The Equity Release Council is a group that was set up to raise the standards and reputation of the lifetime mortgage industry. It invites lenders and advisers to become members and follow the group’s rules and guidelines. These rules are made to benefit the borrowers and therefore make the company more appealing than those that are not members.
All members must be authorised and regulated by the Financial Conduct Authority and on the Financial Services Register.
Which companies do equity release?
Equity release loans – including both equity release lifetime mortgages and home reversion plans – are usually available exclusively from equity release companies. Very few banks offer these loans and those that do usually stick to lifetime mortgage products only.
This means many of the companies that offer equity release may be unfamiliar to you, but there are a couple that are household names, such as Aviva. Here are some examples of equity release lenders:
- More 2 Life
- Pure Retirement
- Legal and General
- Nationwide Bank
- One Family
Can I get help searching for equity release?
You can get help searching for a lifetime mortgage or home reversion plan. Your equity release adviser may offer an extended service to help find you the most suitable deals after receiving tailored advice. Or you may want to use an equity release broker.
What is an equity release broker?
An equity release broker is someone who helps you to find the most suitable and advantageous lifetime mortgage or home reversion schemes, as directed by your personal needs. They will search the market to uncover your options and even help with the application process when possible. You may also need the services of an equity release solicitor.
Equity release broker commission and fees
Equity release brokers may charge a fixed fee for their work including VAT, or they may charge a commission of your eventual loan once approved. The most cost-effective payment structure will be determined by the exact fees and commission, and your intended loan amount.
If you are charged a fixed fee, the average cost once approved can be around £1,000. And if you are charged commission, this can be between 1-5% of your loan amount on average.
Who are the best equity release brokers?
There are a number of experienced equity release brokers in the UK, and many of them may also work as advisers – just how you can get residential mortgage advice and brokerage financial services from one place.
Always do your own timely research, but you may want to consider looking at:
- The Mortgage Centres
- Boon Brokers
- Just Mortgage Brokers (JMB)
- John Whyte
Will equity release stop my pension?
Increasing your wealth can stop you from being eligible to receive some means-tested benefits, depending on the thresholds and terms of those payments. The basic state pension is not a means-tested benefit and can therefore not be affected by choosing to release equity. Pension Credits can however be affected, as can Universal Credit and some Council Tax Reduction benefits.
If you are worried that equity release will stop your benefit payments, speak to an adviser. It may be better to use drawdown equity release in this situation.
What else do I need to know about equity release?
There is plenty more you need to know about equity release before taking the next step. Luckily, all the most important points and FAQs have been discussed on MoneyNerd. Check our other guides out for free today!