In This Article
What is equity release?
Equity release is a mortgage that lets people over 55 tap into the equity in their home without needing to sell it. The money borrowed can be used for many things, such as paying off their debts, home improvements, or funding luxuries for retirement such as new cars or holidays. Different lenders have different criteria around acceptable uses of the money.
Equity release loans often come with lifetime fixed rates (although others are available), and the borrowed amount can be taken as a lump sum or in smaller instalments over time. One of the main positives of equity release is that the loan is usually tax-free.
However, it is very important to bear in mind that taking out an equity release loan mortgage may affect your eligibility for certain government benefits. For more information on how equity release might affect benefits, a useful resource is Entitledto.
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What are the benefits of equity release?
Equity release can be used to fund what you need for retirement in London, including holidays, home improvements to the property (to perhaps adapt it to make it more suitable for you), cars, hobbies or gifts to your family. With equity release, you can access the value of your home without having to sell it.
This means you can continue living in your home while still being able to live using the mortgage funds released from the value of your property.
Equity release can also be a more flexible and affordable way to borrow money in retirement than taking out a traditional mortgage due to not needing to make monthly repayments, unlike a standard mortgage. This would however be added to the balance of the mortgage.
How does equity release work?
If you’re over the age of 55, you can release funds from the value of your home without having to downsize to another property. Equity release schemes work in two ways: Lifetime mortgages and home reversion plans.
A lifetime mortgage is a type of equity release where you borrow a lump sum of money against your home and don’t have to make any repayments until you move into long-term care or pass away. The amount you receive depends on the value of your home and how much equity you have in it.
With some lifetime mortgage products, you can choose to make a monthly repayment of interest if you wish. This can help to keep the debt from compounding over time. Additionally, some products allow overpayments of, for example, 10% per year.
Lifetime mortgages can also be used for purchasing properties. For example, if you saw the perfect property in London but did not have enough in cash/equity to finance the entire purchase, a lifetime mortgage may be the solution. Speaking with a professional adviser will give you a clearer idea of this.
Interest-only lifetime mortgage
An interest-only lifetime mortgage is a type of lifetime mortgage where you can make monthly payments to pay the interest on the loan. With this type of mortgage, the capital will remain the same if the full amount of interest is paid each month.
Interest rates on lifetime many lifetime mortgage products are often fixed for life, so there’s no need to worry about increasing costs over time due to inflation or changes in interest rates. Some products are fixed for a shorter time though or variable so always ask for advice from your mortgage adviser about this.
Drawdown lifetime mortgage
A drawdown lifetime mortgage could be a good fit for you if you want to keep your home and do not need all of the money raised in one lump sum. With this type of loan, you continue to own your home after you release the funds, but you can do so gradually over time, as opposed to all at once.
This may be a solution for funding smaller purchases such as holidays and cars as the interest will only be charged on the amount drawn down rather than the full facility.
Home reversion plan
A home reversion plan may be an option for people over the age of 65 who are looking for extra cash. With a home reversion plan, you give up ownership of some or all of your property for a tax-free lump sum or series of payments.
In exchange for this payment or payments, the home reversion provider will offer you a lifetime tenancy, which allows you to reside in your home rent-free for the rest of your life.
Before taking out a home reversion plan, it is important to get professional advice to make sure that this is the right decision for you as you are giving up your home and this is not a decision to make lightly.
Owning property in London
Over the long term, London has continued to be an extremely popular city to live in and among the most sought after in the world for owning property.
London has been a hub for pubs, shops and restaurants for many centuries. It is filled with people ranging from first-time buyers buying their first one-bedroom home to some of the country’s most successful people living in London’s most expensive residences.
People have found it harder over the years to afford properties in London as they have continued to rise over the long term. Most people buying a property in London will require a mortgage to complete the transaction. There will, of course, be some in a position that does not need to borrow, however, the majority of the market take mortgages in London.
Is London a good place to retire in?
London can make a great place to retire in as there is always plenty to do. Depending on how you want to spend your time in retirement, London will have plenty of options for days out. If you have a family that you’ll want to spend time with, there is plenty for them to do as well.
There are some great museums such as The Natural History Museum and the Victoria and Albert Museum, galleries such as the Tate Modern and the Saatchi Gallery and plenty of parks such as Hyde Park, Regents Park and Green Park. Link to as many as possible
Here is a great article by Tripadvisor which is a guide to London for a senior.
For people over the age of 55 still working in London, most would like to be located close by to avoid the long commute. The transport links in London are excellent making it an easy city to cross.
For travelling abroad, you have easy access to several airports such as Heathrow, Gatwick and City Airport. Travelling to Paris and Brussels is also convenient by Eurostar from London St Pancras.
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Where are good locations for investing in property in London?
When it comes to looking for the best places to buy a property in London to retire in, this is very subjective as it will depend on what each individual likes to do and wants from a neighbourhood.
For example, some people wishing to buy a property in London looking to live in it may pick an area based on what amenities are around them This also may be budget based where buyers may not be able to afford the location in London that they would most like to live in. For instance, Mayfair would be out of range for many buyers.
There are many great locations for property investing around London and different people will have a different opinion on which area may consider to be the best for investing in.
Three popular areas are Kensington, Barnes and Chelsea. Here is some information about each area.
Kensington is a district in the Royal Borough of Kensington and Chelsea, in the west of London. Its commercial heart is Kensington High Street, and it is one of the most affluent areas in London. The area is known for its museums and cultural attractions, as well as its high-end shopping. Notable landmarks include Kensington Palace, the Royal Albert Hall and Hyde Park.
Barnes is a village located in the southwest of Greater London, England. The village is situated 10.3 miles west of Charing Cross and forms part of the London Borough of Richmond upon Thames.
It has a long history as a coaching stop on the route between London and Southampton and was recorded in the Domesday Book of 1086. The village was absorbed into Greater London in 1965 and is now a prosperous suburb with a village-like feel.
It has a long high street with many shops and restaurants and is home to several schools and a hospital.
Chelsea is a fashionable district of southwest London, bounded to the south by the River Thames. Its boundaries have been defined in various ways, but since 1965 have been: the north, Sloane Street and Knightsbridge; the east, the King’s Road; the south, the river; and the west, Fulham Road.
The area has been home to several famous residents, including the writer Oscar Wilde and the painter J. M. W. Turner. Chelsea is also home to several football clubs, including Chelsea F.C. and Fulham F.C.
The district has several tourist attractions, including the Chelsea Physic Garden, the Saatchi Gallery and the Royal Court Theatre.
Do you qualify for Equity release in London?
To be eligible for equity release, you must be over the age of 55 and own your home. If you meet these criteria, you may be able to use equity release to pay off debts, finance a project, or cover daily expenses and more depending on each lender’s rules.
The amount of money you can borrow with equity release depends on the value of your home, but loans typically range from £10,000 to £250,000 but this can be much higher depending on the area.
Before applying for equity release, it’s important to figure out how much money you need so that you can choose the right loan size for your needs.
You should always seek professional advice when considering a lifetime mortgage. Your adviser should be regulated by the Financial Conduct Authority.
What is the maximum amount I can borrow if I want to unlock the equity in my home in London?
Many factors come into play regarding this, including your age, circumstances, your property, the type of loan you want to take, and the amount of equity you are hoping to raise.
For example, your age and the value of your property are big influences on the maximum loan you can borrow.
Also, your health and lifestyle can play a role, as some health conditions could enable you to borrow more.
Another factor to consider is your property itself. Is your home currently unencumbered? If you still have a mortgage, the maximum equity amount that you can apply for will be reduced by the amount of mortgage that you still have left to pay. Additionally, the type of property that you own and its present condition may also be factors.
Alternatives to equity release in London
Equity release is not for everyone, therefore homeowners must research the benefits and the drawbacks of equity release, alongside the alternatives available.
Can you downsize?
You may have more space in your home if your children have grown up and moved out. One alternative could be to move to a smaller lower valued property to release some funds. Questions to ask yourself are:
- Does your current home require large amounts of maintenance?
- Is your home too expensive to maintain?
- Are you far away from friends and family?
- Do you feel lost in your large home?
Although downsizing could be an option for you, there are many fees and taxes that you must consider, including estate agent fees, legal fees, moving costs, and stamp duty for the new property being purchased.
Some people consider renting out a room taking advantage of the Rent A Room Scheme from the government.
SpareRoom may be a useful website for you to use when working out what rental income a room may attract.
It may be that you still qualify for a normal mortgage and don’t need equity release.
Can you budget more?
If you are struggling financially, can you consider applying for a new budget to fit your lifestyle? Can you review your expenses and establish whether you can make savings or if you can change utility companies to get a better deal?
Can you let out a spare room?
The government’s Rent a Room Scheme allows homeowners to earn several thousand pounds tax-free. However, there are several responsibilities that you are obliged to meet, you should ensure you are aware fully of these responsibilities before deciding to rent a room in your property.
You may also not want a stranger living in your home so the decision is not small.
If you did want to explore letting out a spare room, SpareRoom is a good resource.
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The benefits of taking equity release in London
There may be several benefits to taking out equity release on your property in London, such as not having to make any repayments, the mortgage is paid off when you move into long-term care, accessing a tax-free lump sum, and continuing to own your home.
Additionally, most regulated products come with a no negative equity guarantee, and you can choose to make a monthly repayment of interest if you wish.
The downside to equity release in London
One downside to home reversion products is that they may not pay you the full market value for your London home. Instead, they may only pay you a percentage of the value, based on how much equity you have in the home.
This can be a problem if you have a lot of equity and want to sell your home, as you may not get as much money for it as you would if you sold it by another method.
Another downside to lifetime mortgages is that if the interest is not serviced, the loan will roll up over time eating away at your equity.
Can I sell my London house if I have equity release?
You can sell your house in London if you have equity release, but you may have to pay penalties. Be sure to consider this when taking out equity release. You may be able to sell the property and take the mortgage with you to another property, but it’s best to get professional advice before making any decisions.
Do you have to pay monthly for equity release?
The answer is yes and no. The ones where payments are mandatory are Retirement Interest Only (RIO) products that are underwritten based on the applicant’s income.
However, with the most popular form of equity release, a lifetime mortgage, the loan balance rolls up with interest retained. However, some plans do allow for a standing order to be set up so interest can be paid and the loan balance remains the same. Your adviser would be able to recommend a suitable product based on your plans.
Could I rent out my house with an equity release mortgage?
Although most equity release products will not allow you to rent the house out, some are designed for buy-to-let. Your mortgage adviser will be able to explain the different products to you when you discuss your intentions.
Find more details on standard buy-to-let here.
Do I need a solicitor for equity release?
You will need to use a solicitor when applying for equity release, and most lenders will require that the law firm has at least three or four lawyers/partners. This means that your regular local solicitor may not be acceptable but best to find out. The solicitor will also need to be on the lender’s panel to act.
Would equity release mortgage advisers offer face-to-face appointments at my home in London?
Yes, many equity release mortgage advisers will be happy to come to your home in London to offer you a face-to-face appointment. For equity release, it is recommended to see your adviser in person so they can make sure that you understand the advice that they give you.
You may wish to have a family member with you when you meet your London mortgage adviser so they can be involved in the decision and the process which will not be a problem with the adviser. They will welcome as much family support as you need as your adviser will want to make sure that you understand what is being recommended to you and all of the terms involved.
I NEED ADVICE can match you with a regulated equity release mortgage adviser that can visit you at your home in London to you bespoke advice about equity release. You would be under no obligation to proceed with the adviser.
As we have mentioned, London has been a brilliant place for property investing over the years and millions of people love to call London their home.
There are lots to do in London, whether for people that are retired or for the family, such as the grandchildren.
Equity release can be a way of releasing money from your home in London to help fund your retirement. It is, however, a subject that requires serious thought as the products are designed for a lifetime so not for short-term use.
If you release equity from your home, you can either take the money as a lump sum or as regular payments. The money is tax-free but may affect your benefits so the advice here is needed.
You should always talk to a professional equity release mortgage adviser when considering raising money in this way and the adviser should hold the appropriate permissions. It may be worth checking that the adviser is a member of the Equity Release Council.
If you would like I NEED ADVICE to match you with an equity release mortgage adviser that can visit you at your home in London to give you individual mortgage advice, please complete the contact form.