More than 40,000 homeowners take out an equity release plan every year equivalent to roughly £2.6 billion of property wealth. There are many reasons that over 55’s might need additional equity, including meeting rising living expenses (especially with life expectancy increasing), home improvements or lifestyle enhancements. It’s well known that there’s a pension shortfall crisis, particularly for those working pre auto enrolment, and therefore additional income may be required to supplement pension pots. The view that property should be left as a legacy for children is fading. Passing wealth down earlier in life is becoming more common. Unlocking the potential of your home is an opportunity to help a child or loved one with a house deposit, university fees, wedding costs or other expenses.
What are the benefits of equity release and how does it work?
Equity release is a way to unlock the value of your property and turn it into cash. You don't need to have fully paid off your mortgage to do so, and you can take the money as a lump sum, or in smaller amounts over time (known as drawdown), or a combination of both.
Of course, an alternative is to sell up and move to a smaller home and live off the excess cash. Some people need to downsize for health reasons i.e. for adapted living or to move to a property with no stairs, but if you need the room for friends and relatives to stay, or have many friends in the local community, then downsizing may not be a choice you want to make.
The most common type of equity release is a lifetime mortgage. Unlike a traditional loan, there are no monthly repayments with this type of lending, and the money released is tax-free. You can borrow up to 60% of your property’s value at a fixed interest rate, so it’s an attractive proposition for those with prime property where the home is of significant value, especially with property value increasing so much in recent years.
By reducing the value of your estate, it may also lower the IHT liability for your beneficiaries upon your death. With an IHT threshold of just £325,000, equity release can be considered as a tax planning tool for high-net-worth individuals when carefully managed as part of a wider portfolio. Plus, equity release is not considered a disposal of your home as it’s classed as a loan secured against your property. Therefore, you don’t have to pay CGT on the money received.
An equity release plan will normally end when you or the last remaining applicant passes away or the property is sold. At the end of the plan, your home is sold, with the loan and rolled up interest repaid using the proceeds. Any remaining funds are passed to your estate. You also have the option to start paying back the loan earlier with voluntary repayments, subject to criteria.
Where can I source an equity release mortgage
Equity release is a product that needs considered carefully as it does have long term implications. It has come under much scrutiny in the past often because of misguided or unregulated advise, especially as i’s sold to older customers, a group which is deemed to be more vulnerable. In 2023 the Financial Conduct Authority published their review of the equity release market and uncovered that over 400 financial promotions of equity release products were misleading or inaccurate. Some promotions did not fully explain the risk of taking an equity release product and firms were found not acting on their recommendations regarding the suitability of the product.
Enness Global have recently become members of the Equity Release Council. The council only recommend brokers and lenders who adhere to strict guidelines, ensuring your safety. These approved members specialise in equity release and can guide you through the process, helping you to make an informed decision. An additional benefit of using an approved provider, is that your loan will have a no negative equity guarantee. That means you’ll never owe your lender more than the value of your home. So, with Enness, you’re in safe hands.
The additional benefit of working with a broker like us of course, is that we have access to a wide variety of private lenders and banks to find you the best deal for your circumstances. We also have extensive experience in dealing with high-net-worth individuals with unusual or complex income structures, advising holistically on the best wealth management strategies and will therefore consider the bigger picture in deciding whether equity release is the right tool for you.
To find out more about equity release for high-net-worth individuals please contact Carly Cheeseman or Micheal Frimpong.
The views and opinions expressed in this piece are those of the author and do not constitute advise or a recommendation. They do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.
