The advantages of equity release being used to raise capital from property have been widely advertised. It is commonly known that their uses have been to enhance retirement lifestyles by way of home improvements, holidays, debt consolidation etc.
However, a further function of this increasing popular over 55's mortgage is its ability to assist with a house purchase.
In essence, an equity release scheme is a mortgage secured on ones property; however unlike a conventional mortgage there are no monthly payments. Instead, the interest charged by the lender is added to the loan & compounded over the term. Therefore, similarities between equity release & a household mortgage co-exist. Furthermore this similarity extends to the house buying process.
When funds need to be raised to assist with a house purchase, a conventional mortgage is normally utilised to bridge the shortfall between the purchase price & any deposit already held. Equity release can also assist a house purchase by using exactly the same principles as a mortgage.
Experience has shown that as people move through their retirement years their health may deteriorate & disability may result. As a consequence, their existing property may become less accessible if stairs or even property location is an unsuitable feature.
Aspirational requirements may dictate that a move to a more ‘up market’ is required. Many reasons for a move in retirement exist.
Upon review therefore, it may be necessary to look for an alternative property which meets the new objectives of accessibility, which could either be buying a bungalow or even moving nearer to children, who can take more care.
As the purchase price of a bungalow or new house could be more expensive, there may be a cash shortfall to fulfill the transaction.
Equity release can therefore be applied for on the new property to bridge the difference between the equity available from the sale of the existing house & the purchase price of the new house. At this point, it would be advisable to approach an experienced independent equity release adviser such as Equity Release Supermarket, who can source the most suitable equity release scheme available for house purchases.
The adviser will need to make calculations to ascertain exactly how much capital will be required, as not only is there the equity shortfall, but also whether any additional costs including solicitors fees, stamp duty, removal costs even home improvements may be required to be included in the equity release application?
A recommendation can then be made as to which equity release scheme would offer the best terms for the purchase; be it lowest interest rate, flexibility via drawdown or early repayment charges & taking advantage of any special lender offers that are currently available.
Other factors which need to be considered are whether any existing mortgage needs to be deducted from the sale proceeds, as this will reduce the equity that can be used as a deposit. Once these calculations & recommendations are made, the application can be submitted to the prospective equity release company.
The equity release application process is virtually the same as any mortgage: -
- Valuation carried out by a independent surveyor appointed by the lender
- Solicitor instructed to commence legal work & enquiries made on behalf of the applicant
- Upon satisfactory valuation, an offer is then made by the lender
- Upon receipt of the offer, the paperwork is drawn up by the solicitor which is signed by the client in due course
- Exchange takes place & completion date set.
- On the day of completion, the solicitor requests funds from the equity release provider & along with the client’s deposit, transfers the proceeds to the vendor’s solicitor to complete the legal process & purchase.
In summary, an equity release plan can be used to actually move up market to a more expensive or suitable property to meet future retirement needs. This could be for disability reasons, live in close proximity of the children or even aspire to a house of your dreams!
