Equity release

It is reported that homeowners taking out equity release products is on the rise. Equity release enables homeowners aged 55 and over to use the equity (that is, the money value) tied up in their homes to help with income or capital needs. The most common situation is where a party who owns the legal title to the property takes out a special type of mortgage from a lender specialising in equity products. The lender advances a sum of money, often calculated on the value of the property, and takes a mortgage over the property as security for the loan. The unique feature of an equity release mortgage is that the property owner is not required to make any repayments on the loan (although interest will be added to the loan). The loan is usually paid back when the last living property owner dies or moves into permanent long-term care when the property is sold.

Many homeowners have found that equity release mortgages help them to stay living in their home by enabling them to borrow against the value of the home. The equity lender and the homeowner must always obtain advice from different law firms. The lawyer acting for the homeowner must give comprehensive advice to ensure that the homeowner understands the nature of the product and it is suggested that the homeowner also discusses the equity will mortgage with their family or dependents. The reason for this is that the amount owing to the lender increases on a regular basis and it can be a nasty shock for beneficiaries to find out on the homeowner's death that a significant part of the value of the property has to be repaid to the equity will lender.

There is an increasing focus on the position of someone who will live in the property with the homeowner but who does not own the property. This person is referred to as an 'occupier'. Typically, this person will be a spouse or co-habitee living with the homeowner. The equity release lender will require a non-owning occupier of the property to sign a consent form confirming that they will move out of the property when the property is sold. This puts the non-owning occupier at risk of being homeless. It is important to ensure that the occupier takes independent legal advice as to their position in this situation. It may be that they feel they have no choice but to sign the lender's consent form, but this will at least be in the knowledge that they understand their legal position.

There are ways of trying to avoid this unfortunate situation, one of which is to explore transferring the legal title to the property into the joint names of the homeowner and their partner before the equity release loan is completed. It is therefore important for anyone considering an equity release mortgage to take legal advice as to the situation early on in the process. A specialist property lawyer can advise the homeowner on the most effective way of proceeding.

To discuss this or any other property matter, contact us.