Equity Transfer: A Guide for UK Homeowners

Equity Transfer: A Guide for UK Homeowners

Equity transfer is a way for homeowners to access the equity they have built up in their property without having to sell or move out. It has become an increasingly popular option, especially for older homeowners looking to supplement their retirement income. In this guide, we’ll explain everything you need to know about equity transfer schemes and how they work in the UK.

What is Equity Transfer?

Equity TransferEquity transfer, also known as equity release, allows homeowners to release a cash lump sum from their property while continuing to live there. This is achieved by taking out a lifetime mortgage or selling part of the home’s value to an equity release provider.

The equity is calculated based on the current market value of the property minus any outstanding mortgage debts. Releasing equity does not involve taking on a traditional repayment mortgage – there are no monthly repayments to make. Instead, the equity release provider places a legal charge on the property, which is eventually repaid when the homeowner passes away or moves into long-term care.

How Much Equity Can I Release?

How much equity you can release depends on your age and the value of your home. Most providers will allow you to access between 15% and 50% of your property’s value if you are 55 or older. The older you are, the higher percentage you can generally borrow.

For example, if your home is worth £250,000 and you are 65 years old, you may be able to release up to £100,000 (40% of the property value). This would leave you with at least £150,000 of remaining equity in your home.

The Benefits of Equity Transfer

There are several benefits that make equity transfer an attractive option:

  1. Access tax-free cash – The money you receive is tax-free and you will not pay income tax on it.
  2. Remain a homeowner – You can continue living in your property for life or until you need to move into long-term care. There is no requirement to downsize or relocate.
  3. Flexibility – You can release equity in phases if you do not need a large lump sum immediately. This allows you to access more cash later on if required.
  4. Use cash freely – There are generally no restrictions on how you use the money from an equity transfer. It can be spent on anything from home improvements to daily bills.
  5. Maintain inheritance – Any remaining equity is guaranteed to go to your beneficiaries when the property is sold after your death.

Equity Transfer Options

There are two main types of equity release products available in the UK:

Lifetime Mortgages

A lifetime mortgage is the most popular form of equity release. It is a loan secured against your home which is repaid by the sale of the property when you pass away or move into care.

  1. The loan is interest-only, meaning you do not make any monthly repayments. The interest simply rolls up over time and is deducted from the sale proceeds later on.
  2. Interest rates are fixed, variable or capped. Fixed rates offer certainty but variable rates could go down and save you money over time.
  3. You retain ownership of your home and can still move or sell it if needed. However, you would have to repay the lifetime mortgage early in this case.

Lifetime mortgages allow you to release a large tax-free lump sum from 15% to 50% of your home’s value.

Home Reversion Plans

With a home reversion plan, you sell a percentage share of your property to a reversion company in exchange for a tax-free lump sum.

  1. You give up ownership of the share you sell but retain the right to live in your home rent-free.
  2. When the property is eventually sold you will receive a percentage based on the remaining share you still own.
  3. Home reversion plans allow you to access up to 60% of your property’s value.
  4. No interest rolls up so the equity left for inheritance may be higher compared to a lifetime mortgage.

Home reversion reduces your ownership share so you may get back less compared to the lifetime mortgage option.

Client Review:

“Sarah & her team have been so good, we had an initial buyer fall through but the AVRillo team moved swiftly to engage with our next buyer. I love the tech side of this companies approach as its so fast – if you keep up with the emails they send you & deal with them – they then are just as speedy dealing with the work. Fast but thorough is probably best way to describe their approach.” – Mick, a satisfied AVRillo client.

How To Release Equity

If you decide equity release could be right for you, follow these steps:

  1. Get impartial advice – Speaking to a qualified equity release adviser is highly recommended before committing. They can explain your options and ensure you choose the right product. Advice fees may apply but are usually around 1% of the amount released.
  2. Check eligibility – To qualify for equity release you’ll need to be 55+ and own your home outright or have very little mortgage left to pay. The property should be your main residence in the UK.
  3. Choose an equity release provider – There are many lenders and reversion companies to pick from. Compare interest rates, features and fees to find the most competitive option. Stick to FCA authorised providers only.
  4. Apply and release equity – The provider will value your property and make you a conditional offer. This is followed by legal work to secure the equity release on your home. Funds are typically released within 4-12 weeks.
  5. Spend the cash – Once the lump sum arrives in your bank account you are free to spend it as you wish. Make sure to shop around for the best utility bills, insurance deals etc.
  6. Consider risks – All equity release reduces the value of your estate. Interest rolling up can also eat away equity over time. Seek ongoing financial advice to ensure it remains the right option for you.

Is Equity Release Right for You?

Equity release can provide homeowners with useful retirement funds or cash gifts for loved ones. However, it reduces your estate so is not suitable for everyone. Seek qualified professional advice to weigh up the pros and cons in your individual situation.

This guide covers the key facts about equity transfer in the UK. Be sure to compare products from different providers to find the best equity release option for your needs.

Conclusion

Equity TransferAt AVRillo, we understand that equity transfer in the UK is a significant decision for homeowners, particularly those looking to supplement their retirement income. Our expertise in conveyancing, akin to that of a medical specialist in a specific field​​, ensures that we can guide you smoothly through the equity transfer process. We pride ourselves on our efficient service, completing cases in approximately 8-10 weeks, significantly faster than the average 20-week duration​​.

Our client-centric approach is at the heart of everything we do. We prioritise your needs over profit, offering transparent pricing with no hidden fees and payment only for services utilised​​. Our commitment to your satisfaction is further demonstrated by our unique 60-day free trial and a 100% money-back guarantee​​. With AVRillo, you’re not just choosing a conveyancer; you’re selecting a partner who values quality and efficiency, ensuring your equity transfer is handled with the utmost care and professionalism.

 

Also See: 

  1. What is conveyancing? 
  2. What is staircasing in conveyancing? 
  3. What is residential conveyancing? 
  4. What is a licensed conveyancer? 
  5. What searches do conveyancers do? 
  6. What is an environmental search in conveyancing? 
  7. What is a local search in conveyancing? 

 

Equity Release FAQs

Can I get equity release if I still have a mortgage?

Yes, it is possible to get equity release with an existing mortgage, but the options may be more limited. Your total loans cannot exceed about 60% of the property’s value.

Do I pay tax on money released from equity transfer?

No, equity release lump sums are tax-free under current UK rules. The money is not counted as income for tax purposes.

Can I move house if I have equity release?

Yes, most equity release mortgages are portable so you can transfer them to a new property. However, you may need to repay the loan if you downsize to a lower value home.

Is equity release ever mandatory to repay?

No, with lifetime mortgages and home reversion there are no compulsory monthly repayments. The equity provider cannot force you to sell or vacate your property.

Can I make voluntary repayments on my equity release mortgage?

Some lenders may allow partial repayments which can minimise interest roll-up. However, most do not offer this feature on standard lifetime mortgage products.

What happens to remaining equity when I die?

Any remaining equity after the property is sold goes to your beneficiaries. The equity release provider cannot claim more than the total agreed loan amount and interest.

Can I release equity again in future if needed?

Yes, you may be able to take out additional equity at a later date as long as it keeps within your loan-to-value limits. This is known as making a drawdown.

Is equity release subject to affordability checks?

No, providers do not check your income when releasing equity as there are no affordability criteria to meet. The decision is based on your age and property value.

Can I get equity release if I have an interest-only mortgage?

You may still qualify but will likely need to repay some or all of the interest-only mortgage first before releasing additional equity.

Get a Free Conveyancing Quote


AVRillo Awards

Get a FREE Conveyancing Quote