Equity Release Age Guidelines in 2023
The equity release market has become a lot more reputable compared to years gone by largely due to oversight by an organisation called the Equity Release Council.
Releasing equity can be a valuable lifeline for people who own property in later life, allowing people to free up cash that would ordinarily be tied up in equity.
There are age restrictions in place with equity release products and you may be wondering if you’re too young (or old) to qualify.
What is equity release exactly and how is the product different in 2023? What are the age restrictions and how can you qualify for equity release?
Let’s explore further.
- What is Equity Release?
- How Does Equity Release Work?
- Is There an Age Limit on Equity Release?
- Can I Get Equity Release at 50?
- Is Equity Release only for Over 50s?
- What is the Maximum Age for Getting Equity Release?
- The Benefits of Equity Release
- Disadvantages of Equity Release
- Who Are the Equity Release Council?
- Can You Be Denied Equity Release?
- What Are the Alternatives to Equity Release?
What is Equity Release?
If you own a property, the value of the property minus any outstanding mortgage debt is known as equity.
You might find that later in life you’re asset rich but cash poor.
This is for a number of reasons but most commonly it is because you may have spent the first part of your life accumulating assets (houses, cars etc.) and in later life your income is reduced when you retire.
Equity release is a type of mortgage you can get that allows you to borrow money against the equity you hold in your property.
Unlike a traditional mortgage however, you will not be obligated to make monthly payments to pay off the debt.
There are two types of Equity Release product available in the UK:
- Lifetime Mortgages
- Home Reversion Plans
Both more or less achieve the same outcome but do so in different ways.
A lifetime mortgage is the most common type of equity release product used in the UK.
You borrow money against the equity in your property and when you pass away (or move to long term care) the mortgage will need to be redeemed.
The borrower’s beneficiaries will have the chance to refinance or sell the property to clear the debt.
But if they are unable to clear the debt, the lender will sell the property and pass on any remaining equity to the beneficiaries.
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Home Reversion Plans
The home reversion plan is less common but can be a good option in some circumstances.
With a home reversion plan, you sell all (or part) of your property to the plan provider at a discount of its market value.
This of course gives you funds from the sale and if you only sell part of the property, you can still benefit from any increase in property value that occurs.
The plan provider will give you what’s known as a lifetime tenancy and you have the right to live in the property until you die or move into long-term care.
There is no interest on a home reversion plan because there isn’t a loan from a lender.
Instead plan providers will buy all or a portion of your property upfront.
The reason this option is not used as much as lifetime mortgages is because you might find the value offered on a home reversion plan is unfavourable compared to a lifetime mortgage product.
How Does Equity Release Work?
Depending on which equity release product you proceed with, there will be differences in how it works.
Lifetime mortgages typically allow you to borrow up to 50% of the equity you hold in your property.
Interest is then accrued from the point you take the mortgage and rolls up until you die or go into long-term care.
You can either pay the interest monthly or allow the interest to compound.
Some lifetime mortgages cap the amount you will eventually owe at the total value of the property.
This is known as a No Negative Guarantee where you can never owe more than the value of your property. However there are equity release products that can result in you owing more even after the property is sold.
For more information about this, check the Equity Release Council section at the end of this article.
The money raised by an equity release product is tax-free in almost all cases and can be paid as a lumpsum, regular payment or even a combination of the two.
Is There an Age Limit on Equity Release?
The minimum age for a lifetime mortgage product is 55 years old.
Most providers don’t have an upper age limit.
However, you will find that some lenders operate different age limits including maximum ages.
For example, there are equity release providers that will only accept people over the age of 60 and others who won’t accept you if you apply over the age of 80.
Can I Get Equity Release at 50?
No, not currently.
Home reversion plans and lifetime mortgages are typically available for those over the age of 65 and 55 respectively.
If you are 50 years old, there may be alternative later-life products of interest such as Retirement Interest Only mortgages or standard mortgages with a shorter term period.
Is Equity Release only for Over 50s?
Yes, equity release products are designed to help people financially later in life with a significant focus on those in retirement that are lacking funds.
We mentioned earlier that many older people find their income drops (sometimes quite a lot) after retirement and freeing up cash from equity can be really beneficial to improving their quality of life.
What is the Maximum Age for Getting Equity Release?
There is no maximum age for equity release in the UK although some providers put a maximum age of 80 on their plans.
If you’re older than 80 and looking for equity release the good news is that it is still available to you, and you can discuss your options with your equity release broker.
At Boon Brokers, we regularly help clients over 80 years old with equity release applications.
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The Benefits of Equity Release
There are numerous benefits of equity release.
Below we outline the key advantages:
- You can decide how you receive the money. Some people opt to drawdown a lumpsum and regular payments thereafter. You can also take the money in a single lumpsum or as regular payments.
- There is no need to worry about your income for the mortgage, unlike a conventional mortgage. Equity release lenders only assess how much they can lend based on the applicant’s age and the valuation of the property.
- You have no restrictions on what you spend the money on once the money is paid to you, it is yours to spend on any legal activity.
- There are no monthly mortgage payment obligations that you have with a traditional mortgage.
- If you want, you can opt to pay interest payments to stop the mortgage balance from increasing.
- You can typically pay up to 10% of the amount outstanding per annum to reduce the balance of the lifetime mortgage.
- The interest rate with a lifetime mortgage is typically fixed for life, removing the need to remortgage at a later date
- You can’t be evicted from the property (with products approved by the ERC)
- You don’t pay rent and you can remain in your home until you die or move into long-term care.
By using a product that meets the Equity Release Council standards you also have additional rights and protections.
A key protection is the No Negative Equity Guarantee whereby you cannot owe more than the value of your property.
For example, if a recession occurs and your property deflates in value below the sum of the lifetime mortgage, the difference is written off by the lender when the mortgage is redeemed.
Disadvantages of Equity Release
The main and most commonly discussed disadvantage of equity release is the potential loss of inheritance for beneficiaries.
However, the extent of this loss does depend on a couple of factors.
If general inflation for the property increases at a faster rate than the compounding interest on the lifetime mortgage, the absolute change in inheritance for beneficiaries may increase instead of decrease.
Also, if you decide to pay the interest for the lifetime mortgage from the start of the term, the mortgage balance will not increase.
This means that the inheritance for beneficiaries would not diminish further beyond the initial lump sum taken from equity release.
There are a few other disadvantages that are outlined below:
- When you take an equity release product you will automatically be diminishing the value of your estate for your next of kin if it was owned outright prior to the equity release
- Although most equity release payments are made in a tax-free way, you could find other taxes are applicable if you exceed certain thresholds (i.e income tax) with regular payments.
- Releasing equity can mean you no longer qualify for means tested benefits or it reduces your benefit entitlement.
- If you take a product outside of the Equity Release Council standards, you could find yourself owing more than the property value when you pass away or go into long term care or finding that your interest is uncapped. Providers that offer products that are not approved by the ERC are equity release companies to avoid.
Some of these disadvantages are unavoidable and you should discuss concerns with your equity release broker to weigh up the pros and cons.
Like all financial commitments, equity release will be something that is great for some people and a poor choice for others it all comes down to your needs and personal situation.
You can avoid some disadvantages by using an Equity Release Council standard product.
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Who Are the Equity Release Council?
In years gone by, equity release as a product attracted a lot of negative attention and publicity.
It is fair to say that lenders could sometimes be unscrupulous and overall, the market needed reform.
The Financial Conduct Authority (FCA) tightened up their rules around equity release and this helped to some extent.
But it didn’t alleviate some of the more problematic areas of equity release such as owing more money than the valuation of the property.
The same question was still asked by consumers is equity release safe?
The Equity Release Council (ERC) was then established to oversee members and to ensure that they provide products that represent the highest standards with numerous legally binding safeguards in place.
The ERC currently represents 90% of the equity release market according to their website.
Unfortunately, this means that 1 in 10 lenders in the UK are still offering unfavourable products.
If a lender is a member of the ERC, they commit to the following:
- Lifetime mortgages must have a capped interest rate, if the rate is uncapped it must have an ‘upper limit’.
- This is to ensure customers have an idea about the maximum amount of interest they can accrue. However, the vast majority of products have an interest rate that is fixed for life.
- The right to remain in your property until you die or pass away (no evictions).
- The right to move from your property to another and transfer your lifetime mortgage, providing it meets the standards of your current equity release provider (<useful for those downsizing in later life).
- No-negative equity guarantee in short, the loan cannot be greater than the total value of your property.
- The ability to make penalty free payments against the loan, subject to lending criteria, of typically up to 10% of the outstanding balance per annum.
As you can see, the standards applied by the ERC go above and beyond the traditional equity release products and offer a high degree of protection and flexibility to customers.
This means that you should think twice before believing that equity release is an unchanged product from the past.
Can You Be Denied Equity Release?
Yes, you can be denied equity release, but this only generally happens if you fail to meet the criteria set out by the chosen lender.
For example, if your property is of non-standard construction such as a ‘grand design’ and the lender is unable to assess its true value or uncertain about whether they will be able to sell it, they may decline.
Certain guidelines are set in stone. For example, if your property doesn’t meet the minimum value criteria, you are not old enough for the product or you want to release less than £10,000 your application will be declined.
Your equity release broker will ensure that you meet the lender’s criteria before submitting a proposal to an equity release company and will discuss any potential problems with you.
Once again, being denied equity release is rare and in almost all cases the application proceeds as expected. More often than not, declines are caused by the lender’s valuation of the property.
A good broker will ask numerous questions about your property to ascertain whether it is suitable for equity release.
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What Are the Alternatives to Equity Release?
The main alternative to equity release is a standard remortgage.
Remortgaging your property will allow you to free up equity in the same way, but you will need to make monthly repayments on the mortgage and meet the age requirements.
Boon Brokers is a whole of market mortgage, insurance and equity release broker.
Boon Brokers offers fee FREE no obligation mortgage and equity release advice.
If you’re wondering about which option is best for you, contact Boon Brokers and we will provide advice based on your specific circumstances.