Releasing Wealth in your home
The most common method of cashing in on part of the value of your home whilst you continue to live there (‘equity release’) is either by ‘lifetime mortgage’ or by a ‘home reversion plan’, both of which are now covered by FSA regulations.
With a lifetime mortgage you take out a loan on which the interest accumulates, and when you die the house is sold and the loan and rolled up interest is repaid. Depending on your age, the amount of the loan may be say 25% to 50% of the current value of your house. There is normally a guarantee that the amount of the loan plus rolled up interest will not exceed the sale proceeds of the house (viz no ‘negative equity'). The ownership of the house remains with you, and your estate may benefit from capital appreciation in the value of the house.
With a home reversion plan you sell your house for a lump sum and take a lease which allows you to live there at a nominal rent until you die. Depending on your age the amount of the loan may be say 30% to 65% of the current value of your house. You may get a higher cash payment than you would if you take out a lifetime mortgage, but you forfeit any capital appreciation. However there could be inheritance tax attractions in using the home reversion plan route, as it enables you to gift all or part of the cash to your heirs and avoids it or the house being part of your estate provided you live for a further 7 years. The costs of setting up a home reversion plan may be higher than for a lifetime mortgage.
See article on 'Equity Release Schemes as a Way to Fund your Retirement Years'.
For further background information:
Compare the pension annuities market with Age Partnership.
Age UK have started an equity release advice service http://www.ageuk.org.uk/latest-press/archive/homeowners-dont-use-largest-assett-to-boost-their-post-retirement-income/
You can get a free guide to Equity Release from Key Retirement Solutions: https://www.keyretirement.co.uk/equity-release/free-guide-request/
Ship (Safe home income plans) is an industry organisation which publishes a code of practice and regulates the use of the trade mark 'Ship' on approved plans. www.ship-ltd.org
see also the topic page on 'Moving House' in the section on 'Developing interests'
For any of our US users interested in equity release from their homes, see https://reverse.mortgage