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Equity Release Scotland – Detailed Overview

equity release Scotland

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

There has been a surge in the number of internet users searching for “equity release Scotland” online. But what really is equity release and is it even available to people who live in Scotland?

If you are an older homeowner looking for a way to access a lump sum loan with zero monthly repayments, you probably want to hear a little more about equity release and lifetime mortgages in Scotland. Always source financial advice before making any moves! 

What is equity release?

Older homeowners above the age of 55 can use an equity release scheme to borrow money secured against their home and not have to make any monthly repayments. The equity release loan only has to be paid back when you die or move into care. 

In either of these events, the homeowner’s property is sold and the sale proceeds are first used to pay back the equity release plan provider. 

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Is equity release available in Scotland?

Equity release is a method of borrowing in later life that is available across the UK. You can find equity release products advertised by Scottish companies and banks, but Scots can also use equity release products from companies based in other areas of the UK if preferred. 

The amount you can borrow will be determined by the value of your property, but you could get as much as 80% of the value of your home as a loan in some cases. This loan can be paid out as a tax-free lump sum or as a drawdown giving you a regular income for a set period. 

When you do look for an equity release plan in Scotland, make sure to only consider loans from companies that are authorised and regulated by the Financial Conduct Authority. 

Equity release eligibility criteria in Scotland

To qualify to apply for an equity release plan you must meet the lender’s age requirement. You will need to be at least 55 years old and may need to be younger than 85 with some lenders. If you are applying for Scottish equity release as joint homeowners then both individuals need to meet the age requirement

The property you want to release equity from must be your main residence rather than a rental investment. It must have no residential mortgage outstanding, or a very small mortgage that will be paid off using some of the money you receive from the equity release loan. Your house or flat may need to be of a certain value as well.

Meeting the above criteria will allow you to apply for an equity release plan. The lender will make a decision on your application after checking your credit file for CCJs and assessing the property. 

Why do Scots use equity release?

Scottish citizens and residents use equity release for a wide range of reasons. Some of the most common reasons to use equity release in Scotland are:

  1. To fund general living in retirement
  2. To pay for private healthcare
  3. To pay for holidays and cruises
  4. To pay for home improvements and renovations
  5. To give away to family who may require the money for a property purchase of their own

The benefits of using equity release

The main benefit of using equity release is that it gives a homeowner access to a large lump sum or drawdown loan that does not require any monthly repayments. This is a unique way of borrowing money and could be the only option for older people. 

Some additional benefits of equity release are:

  1. You continue living at the property
  2. You can use the money how you wish
  3. The money received is tax-free
  4. You can make voluntary interest repayments to prevent your debt from getting bigger and consequently pass on more of your wealth to estate beneficiaries. 

What is the catch with equity release?

The only issue with equity release is that the cost of your loan can become very expensive. If you have an equity release mortgage – known as a lifetime mortgage – for over a decade, the amount you can owe may grow to more than double the amount of your initial loan. We explain just how expensive equity release debts can become in the section below. 

Some other drawbacks of equity release in Scotland are that these plans have eye-watering early repayment charges with most lenders, meaning you may be stuck with it even if you want to get out of the agreement. Moreover, you may lose access to some means-tested benefits after receiving your loan. 

The different types of Scotland equity release

In Scotland and the rest of the UK, there are two types of equity release loans. The first and most popular option is a lifetime mortgage, and the less-used option is a home reversion plan. 

A lifetime mortgage is a loan worth up to 60% of your home equity. This loan is subject to a fixed interest rate that rolls up each month. What this means is that instead of paying the interest on the loan, the amount of interest owed gets added to the total debt. So at the end of each month, you owe slightly more on your lifetime mortgage, which will eventually be repaid from the sale of your home. 

To give you an idea of how quick the debt can grow, someone with a £65,000 loan on a 6.4% interest rate will owe close to £137,000 after 12 years. 

Home reversion plans exchange loans in return for a fixed percentage of your home’s future sale value. When the property is eventually sold to repay the debt, the lender will be entitled to a percentage of the sale money, as agreed at the start of the home reversion scheme. For example, your loan equal to 25% of equity could cost you 60% of the property’s sale value.

Where can you get equity release? (Scotland)

You can get equity release in Scotland from a selection of equity release companies. Some of them are based in Scotland while many are based south of Hadrian’s Wall. There are also a number of banks that offer lifetime mortgages and home reversion plans, mostly the former. 

Does the Royal Bank of Scotland do equity release?

At the time of writing, the Royal Bank of Scotland does not offer a lifetime mortgage within their products and services. They do offer home equity loans that are secured by the equity in your home, but these require monthly repayments and may not be accessible to older homeowners. 

This is not that uncommon. There are many high-street banks that keep away from lifetime mortgages and other equity release plans, including Barclays Bank and Halifax. One of the most well-known UK banks that does offer a lifetime mortgage to some homeowners is Nationwide. 

Is equity release a good idea?

Equity release can be a good idea for certain people who need extra cash to make their retirement more comfortable. To help you understand the financial side of equity release and what you are signing up to over the long term, it is pivotal that you get advice from an equity release adviser. You may also need to speak with an equity release solicitor. 

But sometimes the decision to use equity release or not is not always about the money. You may want to consider how your family will feel knowing they may be forced to sell the property after you pass away. 

Equity release solicitors Scotland

If you need an equity release solicitor in Scotland, you must make sure that the firm you use has at least four active lawyers. If not, they do not qualify to give equity release legal services, as stated by the Equity Release Council. 

There are many options to research and consider. If you are happy to deal with these professionals remotely, one of the biggest firms is Ashfords in England. Or you could consider using the Scotland-based solicitors, Caesar & Howie.

Why YOU need to know about the Equity Release Council

The Equity Release Council is a governing body within the industry that aims to maintain high standards among financial advisers and lenders. They have made a list of rules and guidelines that all members must agree to when operating in the sector. The bulk of these rules have been created to protect homeowners and give them additional guarantees. 

No equity release company in Scotland has to become a member of the Equity Release Council as membership is 100% voluntary. However, as many homeowners will only consider getting a lifetime mortgage from a member, it can be worth it for the lender to become a member and follow the strict rules. 

What is the negative equity guarantee?

Earlier in our guide when we explained how lifetime mortgages work and how expensive they can become, it may have crossed your mind that if you live for a long time with a mortgage, the debt could grow bigger than the value for the property.

So what happens when the lifetime mortgage debt has exceeded your property value. Well, if the home’s value is less than the overall debt and the lender is a member of the council, they cannot try to recover any money beyond what the property sells for. This is because of one rule called the negative equity guarantee. 

This guarantee states that only the money from the value of your property when it is sold can be used to repay a lifetime mortgage. Any remaining debt cannot be chased from the homeowner (if still alive) or requested from their estate or from any family members. 

Will Scotland equity release affect my state pension benefits?

Taking out an equity release plan in Scotland will not affect your eligibility and entitlement to receive a UK state pension. Your basic state pension is not a means-tested benefit, which means the amount you receive is not subject to your wealth. 

However, there are a number of means-tested state benefits which could be affected by a significant increase to your bank balance. For example, Universal Credit is not available to people with more than £16,000 saved up, and Pension Credits start being reduced as soon as you have £10,500 in the bank. If you lose all entitlement to Pension Credits, you can simultaneously lose a council tax reduction too. 

Can you be denied equity release in Scotland?

Scottish equity release companies can deny you a lifetime mortgage or other plan even if you tick all of the eligibility criteria. Once you apply, they will assess your property. They will want to know the current market value of your property, which will help them decide how much equity you can access. 

But they will also want to make sure the property conforms with building regulations and look to see if any hazardous materials have been used to build it, such as the inclusion of asbestos. They also pay particular attention to the roof on the property and the chances of the property being at risk from flooding. 

If they are not happy with elements of the building and its surrounding, they could still reject you from accessing a Scottish equity release scheme from them. 

What are the pitfalls of equity release?

The first pitfall of equity release is using it when you have a better option at hand. To ensure all your alternative options are explored, you should consult with independent financial advice services.

The other pitfalls are taking out a plan earlier than you need to, and taking out more equity than what you need for your purpose. This is why Martin Lewis stated to only do equity release “as late as possible and as little as possible”. 

If you have specific plans for the future, such as moving home, you should mention this to your adviser or broker. They can look for plans that allow you to downsize without incurring any early repayment fees. If you fail to mention it, you could end up stuck in a plan that costs an eye-watering amount to get out of. 

Have another equity release question? MoneyNerd has answers!

If you have further queries and concerns about using Scotland equity release schemes, you can find answers, examples and reviews here at MoneyNerd. We’ve created guides and articles based on the most searched relevant questions, so you’re likely to find engaging and useful content with us.