Bank of Mum and Dad – Understanding Equity Release Options

Bank of Mum and Dad – Understanding Equity Release OptionsWritten on June 14, 2022 by Kirk Rice LLP

I am regularly asked by clients about what options they have to support their family or for their retirement by releasing money from their home. This article aims to provide an overview of those equity release options available to you to help support your family in later life, as well as why other people borrow money in later life.

There are many reasons why you might want to consider equity release from your property:

Pay off your interest only mortgages
Subsidise income for retirement
Paying off debts
Changes to your home
Reduce the value of estate

Below are some of the options available to you:

Retirement Interest Only (RIO)

These mortgages are a relatively new option in later life lending market, being closely related to a traditional residential mortgage rather than a lifetime mortgage or home reversion plan.

Based on an affordability calculation, retirement interest only mortgages are structured around the ability to repay the mortgage from your existing income. Often set up as an interest only loan, hence the name, this has no fixed end date but will run until either both parties die or move into long term residential care. They have fixed rates ranging from two to fifteen years, and are unique amongst this list here, as the debt will not grow as long as your standard monthly payments are met.

Lifetime Mortgage

A lifetime mortgage is structured around borrowing a sum of money, or future regular payments, calculated on your age and potentially your health situation. The older you are, the more money you can borrow; typically, you will be at least 55 before applying. You are not required to make any monthly payments which means the loan will increase steadily based on the interest accumulated throughout its lifetime. Interest rates are fixed for the whole duration of the mortgage, regardless of how long the mortgage runs for or what happens in the wider economy, which means you always know exactly what interest is being generated from your loan.

Kirk Rice ONLY recommends lenders that are part of the Equity Release Council. This independent body ensures rights for you as a borrower and fair practice by the participating lenders. This involves guarantees, such as a ‘no negative equity guarantee’. This means that no matter how much the loan grows when your property is sold, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.

Home Reversion Plans

Home reversion plans involve the sale of some or all of your property to a lender, with a guarantee that you can live there rent free for the rest of your life. This form of mortgage is not available through a Kirk Rice recommendation. Before applying, you should seek independent advice from a legal professional about the potential implications of this in your estate.

All these plans come under the broad term ‘Equity Release’. These are not right for everyone, and it is important that you fully consider your options and receive independent financial advice before making a decision.

To arrange a call with one of our Mortgage & Protection Advisers email mortgages@kirkrice.co.uk

Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.

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