Equity release allows homeowners who are over 55 to release money from their home without having to make any monthly repayments. There are two types of equity release.
Lifetime mortgage involves taking a mortgage which does not require monthly repayments. The homeowner retains ownership of their home and interest on the loan is rolled up and is repaid by the estate on the death of the homeowner or when they move into long-term care.
Home reversion plan involves the lender purchasing all or part of the home in return for a tax-free cash lump sum or regular payments. The homeowner is allowed to stay in the home under a lifetime rent free lease but, of course, on their death the home has already been transferred to the lender so does not form part of the homeowner's estate.
It is fair to say that equity release became a product which gained some bad press. This is often because it was not clear to the borrower, or their family, how much would be owed to the equity release lender on the death of the homeowner. However, the Equity Release Council have gone a long way in recent years to improve transparency standards and the quality of advice given to homeowners.
A central part of the protection for homeowners when taking out an equity release product is to ensure that they obtain detailed, independent legal advice. The obligations placed on those providing legal advice are extensive and include the requirement to advise on issues such as:
- the long-term nature of an equity release product
- the impact that obtaining a lump-sum might have on benefits
- whether the homeowner should discuss the equity release product with their family
- the implications of not making monthly mortgage payments
- the likely cost to pay off the mortgage.
In response to the pandemic, the Equity Release Council suspended the important requirement that the homeowner had at least one face-to-face meeting with their independent legal adviser. However, it has been announced that this requirement will be re-introduced with immediate effect. Accordingly, anyone taking out an equity release mortgage must ensure that they have a face-to-face meeting with their legal adviser. Existing cases which are progressing under the previous rule must complete by 31 July 2022.
To discuss this or any other property related matter, contact us.