A Closer Look at Equity Release Mortgages in the UK

These days, equity release mortgages are getting more and more popular in the UK and with one reputable high street lender having entered the market so far they are aiming to unlock the estimated £800 billion of equity and it is expected lifetime mortgages are on the horizon. The reason behind the popularity of equity release mortgages is due to people’s desire to boost their income at a time of lacklustre equity market and low interest rates, following a period of substantial property price increases. Read on to learn more about the types of equity release mortgages and the advantages it offers.

Equity release mortgage plan

Equity release mortgage plans are for those who have little or no outstanding mortgage on their property. Ideally, any outstanding mortgage payment needs to be paid off by using part of the equity released or by other means if desired. With this equity release mortgage plan, an agreed percentage of the current value of your home is released, and this loan accrues interest at a rate, in line with current interest rates. The greatest advantage of an equity release plan is the tax free fixed loan it offers. The plan does account for the life expectancy of the home owners which also means the next of kin will have the inheritance reduced by the loan and interest amount.

Equity release home reversion plan

With a home reversion plan, you can release a percentage of the value of your home. The interest accrued in this plan is aligned with the appreciation (or rare instances, depreciation) of the value of your home. The factors like health, gender and most importantly the age of the borrower as well as the estimated future value of your home are taken into consideration, in determining the allowable amount you can borrow based on a reduced value of your home. However as the loan must be paid off on the sale of the house, this plan may be unsuitable for those, who wish to leave the whole of a property rather than a monetary value of the property as an inheritance to their next of kin. Again, age is a primary factor in determining the percentage of the value of your home that can be released. A person of an older age can obviously release a higher percentage than a person who is younger as they are not expected to live as long. There is no such maximum age limit for equity release but applications are not usually accepted from anyone under sixty.

It is important to note that an equity release mortgage plan has certain pitfalls as well. For example you won’t receive the full market value of your property, as the lender is offering you a tax free lump sum and is allowing you to live in the property for the rest of your life rent free. Nevertheless, if you carefully consider those pitfalls, it can prove to be a fruitful investment.