However, whereas their spare time has gone up, usually their income has gone down. With the increases in property values in recent years, many people now find themselves in a position of being 'capital rich' but 'income poor'.

This is where equity release might be your solution.

How does Equity Release work?

This depends on which route you take. With one, 'lifetime mortgages', you actually take out a new mortgage. With the other, 'home reversion', you sell your home (or part of it) to the lender. The main thing is that either route enables you release capital tied up in your house, without your having to make any repayments during your lifetime*, and without your having to move house. The lender waits for repayment until a future time, when the house is sold (usually when you have died, or entered sheltered housing).

You don't necessarily have to have already paid your mortgage off, either. Provided the sum you owe is less than the maximum advance available, you might elect to use an equity release scheme to clear your existing mortgage in favour of one which doesn't require any more repayments in your lifetime. We have been able use this to great effect in the past, to enable some of our clients to retire early.

(*There are some types where repayments are made during the life of the mortgage, but we haven't recommended these for our own clients in the past.)

Types of Equity Release

As we have already said, there are, broadly speaking, two routes you can follow when it comes to looking into Equity Release. One is a 'lifetime mortgages' and the other is 'home reversion'. (There are one or two extra things you can build into each type of contract, but they essentially fall into one or the other of these two groups.)

Lifetime Mortgage

Having a lifetime mortgage is very much like having any other mortgage -it is very similar to the mortgages which most homeowners would have held during those years in which they were working. -You apply to a lender, and if accepted they advance you a sum (or sums) of money. In return, you agree to repay the sum advanced, with interest, and they take a charge over your property to safeguard their own position. (This is exactly the same thing as happens with any other mortgage, and it is simply to ensure that the property cannot be sold without the lender first being settled from the sale proceeds).

This is the more popular of the two routes, as you continue to own your home in its entirety, and therefore continue to make any future decisions about it.

All the Lifetime Mortgage contracts we recommend hold the guarantee that, even in the unlikely event that your borrowing ever exceeds the equity remaining in your property, this will never mean you can be forced to move out of your home. (Please see our 'Links' tab to visit the Safe Home Income Plans [SHIP] website, and also 'Age Concern's' Equity Release page).

Home Reversion

The essential difference with a home reversion plan is that you actually sell your property (or part of it) to the lender. As the lender will have to potentially wait a long time for their return, they only offer you a fraction of the actual value of your home. However, in return for actually selling your home (or part of it) to the lender, you may be able to obtain a higher advance from them than with a lifetime mortgage scheme. Otherwise, the two routes are very similar.

We have not applied to the F.S.A. for the necessary permissions to recommend these types of contract, as we have not yet found our own clients to be comfortable with giving up ownership of their homes, even in part. However, we recognise that there are situations where this type of plan may be more suitable. If we feel you would be better off looking further into home reversion, we can refer you on to professional colleagues who specialize in this area, and do hold the necessary permissions.

What are the lending criteria and the application procedures for a Lifetime Mortgage?

There is a minimum age requirement for taking out a lifetime mortgage. This varies between companies, but it is typically age 55. (With a couple, this age applies to the younger life). Reasons for the loan can be very diverse, and advances can be made up of lump sum(s), regular income or a combination of the two.

For example, one person might want a single lump sum to build a conservatory, but their level of income might otherwise be sufficient. Another person might have no need of a lump sum, but have insufficient income to meet their normal living expenses, or perhaps just insufficient to allow them to do some of things they really like to do. Yet another might want a modest lump sum, followed by some regular income as well.

The structure of the advances can be very flexible, but you should be aware that the size of any advance(s) is determined by your age - the older you are, the more you are able to access. Most lenders work on a table of age ranges when working out the percentage of maximum advance(s) they will make available to you. The other factor, of course, relates to the value of your property.

Actually applying for an equity release mortgage is relatively straight-forward, as income assessment is obviously no longer a factor. As long as the property is acceptable as security (which means if it has previously been mortgaged, it almost certainly will be), then there is every reason to expect you can make a successful application.

What is a bit more involved is the pre-application process. This is because we have an increased duty of care to ensure you are clear about what it is you are doing. We also encourage children, (or other beneficiaries of your estate) to be involved at some stage, so that they are fully aware of your intentions, and how these might affect their inheritance expectations. (Of course, this is entirely your own business, so you are not forced to involve anyone else at all, but it is usually desirable.)

We tend to find that children are usually already well-established in their own lives by this point, and that often the parents have already helped them on their paths in life. In our experience, adult children are far more interested their parents' well-being in life, than how much they might leave when they die. It is usually the applicants themselves who are more concerned about their children's inheritance, than the actual children.

Another extra thing we have an obligation to do is make reasonable enquiries into the position you are in with regard to certain benefits. We have to make sure that the proposed actions are not likely lose you any benefits, or if they are, that you are aware, and that the benefits gained are likely to outweigh the ones lost. Also, you may be entitled to some help with grants anyway, without knowing, which might make your actions unnecessary (for example some funding is available for certain necessary home adaptations on health grounds).

Whereas we are not experts in the area of benefits, we should be able to establish if there is something you ought to look into further, and point you in the direction of the necessary authority.

A final layer in your protection will be meeting your solicitor. As your independent legal adviser, he or she also has a duty of care to ensure that you fully understand the process before you sign your agreement. (We recommend that you choose a solicitor who is used to dealing with, or even specializes in, Equity Release contracts. We can put you in touch with one if you wish.)

If you think you might benefit from speaking with us, please get in touch.