As a rule, you should release capital from your primary residence that meets a minimum valuation of around 75,000 pounds sterling and has no debts due, such as a first.
The individual lender will determine the exact eligibility rules for any capital release plan.To qualify for capital release, you'll need to be 55 years of age or older (or over 65 for a home reversal plan) and own your own home. Most providers prefer that you have paid your mortgage and have 100% of the capital of the property. The release of capital could allow you to access the money tied up in your home if you are over 55 years old.
If you qualify, you can apply for a lump sum of tax-free cash or access flexible loans, whether you manage your debts or supplement your retirement income. The news of the increase in interest rates may excite savers, but some should consider whether this increase will be accompanied by a new HMRC tax law. It is also important to explore all options before accessing capital on your property. A lifetime mortgage is one type of capital release.
This involves borrowing a fixed amount of money and using your property as collateral. Unlike a standard mortgage, you don't need to make monthly payments for the loan, since you can choose to let interest accrue over time. Some annuity mortgages will now allow you to make monthly payments and pay some or all of the interest. Other plans allow for partial repayments without penalty, usually up to 10% per year.
When you die or receive long-term care, the loan must be repaid, including interest. This is usually done by selling the property. The most common form of capital release is a lifetime mortgage. It can generally be accessed starting at age 55 and can be a way to supplement your retirement income by using the fixed value of your home. Your annuity or capital release mortgage lender will decide how much you can borrow based on your age and the value of the property.
Some lenders may even consider your medical history and may lend you higher amounts than those available in standard annuities. The maximum amount they can lend you depends on the plan you choose. In addition, the amount available will also depend on the age of the borrower; older borrowers may have higher LTVs. Interest rates on annuities tend to be higher than those of a standard mortgage, and usually range from 4% to 7%.
The rate must be fixed or, if it is variable, there must be a cap or upper limit during the life of the loan. If you want to have the option of making monthly repayments on your lifetime mortgage, your lender will need to verify that they are affordable for you. Making monthly repayments will reduce the interest costs incurred on your annuity mortgage. You must own property in the United Kingdom to be eligible for capital release. There are also minimum requirements for your age, the value of the property and the amount you want to borrow. You won't need to complete an affordability assessment for a lifetime mortgage, and lenders will consider freeing up capital for people with poor credit histories.
The general rule for your property to be considered for capital release is that it is located in the United Kingdom. However, like standard mortgages, there are more lenders available for properties located on the mainland than those lending in Northern Ireland, and often the Channel Islands and the Isle of Man are excluded. Your property must have a value of at least 70,000 pounds sterling and be in good condition to be eligible for capital release. If you don't meet the required standards, you may be denied a capital release loan. If your property needs essential repairs, you may need to repair them.
When you apply for a lifetime mortgage, you will be responsible for the maintenance, upkeep and insurance of your property. You should check if your capital release product allows withdrawals or if it's a one-time payment plan. Withdrawing funds means that you access your cash in stages, rather than doing it all at once. The advantage of this is that, for a lifetime mortgage, only the cash you need is used, which reduces the cost of interest compared to withdrawing a larger sum all at once. Some capital release providers may set a minimum amount for each reduction. The Later Life Mortgage Advisory Office offers plans from a panel of lenders that meet Equity Release Council standards to provide additional protection.
Unless you decide to go ahead with one of their plans, their service is completely free of charge as they only charge their fixed counseling fee of 1295 pounds sterling upon completing a plan. Capital release providers are regulated by the Financial Conduct Authority and increasingly many are members of the Capital Release Council. This commercial body has set regulations designed to ensure that consumers are protected when using capital release products from its members. Some guarantees include fairness guarantee, no negative equity guarantee and security of tenure.