Key Takeaways

• London’s high property values make equity release an attractive option for homeowners.
• Two main types: Lifetime Mortgages and Home Reversion Plans.
• Equity release provides tax-free cash but may reduce inheritance.
• Interest rolls up over time, increasing the overall cost of borrowing.
• Seeking independent advice is essential before making a decision.

Equity release is becoming an increasingly popular financial option for homeowners in London who wish to access the wealth tied up in their property without selling it.

With rising property values in the capital, equity release allows retirees and older homeowners to supplement their income, fund home improvements, or assist family members financially.

However, it is essential to understand how equity release works, its advantages, and its potential drawbacks before making a decision.

This guide provides a detailed overview of London equity release to help homeowners make informed choices.

COMMENT: TimeBank is an unconnected third-party data provider via this medium, and the reproduction in this piece represents the views of TimeBank only and may not replicate the observations of London Equity Release. This article is not to be classified by the user as instruction, nor is it a recommendation to transact any financial product offered by Standard Life.

1. What Is Equity Release?

Equity release refers to financial products that enable homeowners, typically aged 55 or older, to release cash from their property while continuing to live in it. The two main types of equity release are:

Lifetime Mortgages

A loan secured against your home that does not require monthly repayments.

Home Reversion Plans

Selling a portion or all of your property to a provider in exchange for a tax-free lump sum or regular payments.

Why Is Equity Release Popular in London?

London’s property market has seen significant appreciation over the years, with many homeowners sitting on substantial equity.

The high cost of living, combined with longer retirement periods, makes equity release an attractive option for those needing additional funds.

Moreover, London homeowners often have valuable properties that qualify for substantial release amounts compared to other UK regions.

How Does a Lifetime Mortgage Work?

A lifetime mortgage allows you to borrow a percentage of your property’s value while retaining ownership.

Key features include:

• Interest is typically rolled up and repaid when the property is sold.
• Some plans offer the flexibility to make voluntary payments.
• You can opt for a drawdown facility to release funds in stages as needed.
• The loan is repaid when the homeowner passes away or moves into long-term care.

Understanding Home Reversion Plans

With a home reversion plan, you sell part or all of your home to a provider for less than its market value in return for a lump sum or regular payments.

Benefits and considerations include:

• You can continue living in the home rent-free.
• The provider receives their share of the property’s value when sold.
• You may not get the full market value of the portion sold.
• Not as common as lifetime mortgages due to lower flexibility.

Advantages of London Equity Release

• Tax-Free Cash: The money you receive is not subject to income tax.
• No Monthly Repayments: Most equity release plans do not require monthly repayments.
• Retain Homeownership: With a lifetime mortgage, you continue to own your property.
• Regulated Protection: Plans regulated by the Financial Conduct Authority (FCA) offer consumer safeguards.
• Inheritance Protection Options: Some plans allow you to ring-fence a portion of equity for beneficiaries.

Risks and Considerations

• Compound Interest: Interest rolls up over time, increasing the total debt.
• Reduced Inheritance: Releasing equity reduces the amount left for beneficiaries.
• Early Repayment Charges: Some plans have penalties if repaid early.
• Impact on Benefits: Releasing equity may affect eligibility for means-tested benefits.
• Property Market Fluctuations: A decline in property value may impact the amount available for inheritance.

Who Qualifies for Equity Release in London?

• Homeowners aged 55 or older.
• Property must be valued above a minimum threshold (often £70,000 or more).
• The property must be the main residence and in reasonable condition.
• Higher-value London homes may qualify for larger release amounts.
• Existing mortgage debts must be cleared using the released equity.

How to Choose the Right Equity Release Plan

Seek Independent Advice

Consult an equity release adviser regulated by the FCA.

Compare Plans

Different providers offer varying rates, features, and terms.

Consider Family Impact

Discuss plans with family members to ensure alignment with inheritance goals.

Check for Flexibility

Look for plans that allow voluntary payments or drawdown options.

Verify Provider Credentials

Choose a provider registered with the Equity Release Council.

Common Questions

Conclusion

Equity release is a valuable financial solution for many London homeowners, offering access to property wealth while continuing to live in their home. However, it is crucial to weigh the benefits against potential downsides and seek professional advice before committing to a plan. Understanding the different options available and how they align with long-term financial goals can ensure a more secure retirement.