Equity releases are financial instruments that allow homeowners over the age of 55 to unlock a portion of their property’s value, either as a lump sum or through regular payments, to supplement their income during retirement.
Releasing equity can be quite complex. Multiple factors can impact the time taken to release equity from a property and there are several different ways to access equity in a property, depending on the needs of the homeowner.
What Are Equity Release Schemes?
Equity releases are loans accessible to homeowners that are derived from the value of a property. Whether a property is owned outright or has a mortgage, the owner can access part of the full value of that property through an equity release. For example, on a £600,000 property with £200,000 remaining on the mortgage, the owner of the property would have £400,000 worth of equity and be able to access a significant portion of that if they wished.
There are two main types of equity release products, a lifetime mortgage, and home reversion plans. Lifetime mortgages allow homeowners to borrow against the value of their home while still retaining full ownership. The loan, plus any accumulated interest, is repaid when the property is sold, typically after the homeowner passes away or moves into long-term care.
Home reversion plans involve selling a portion of or the entire property to a lender in exchange for either a lump sum or, regular payments. The homeowner retains the right to live in the property rent-free until death or until they move into long-term care, whilst receiving the payments.
How Long Does It Take To Release Equity?
An equity release will typically take 6-8 weeks, depending on the type of equity, personal finances, and the lender's discretion. Due to the complexity of the process and to ensure that the right option is available for the homeowner's needs, starting off by consulting with an independent financial advisor is highly recommended. An initial consultation can take anywhere from a few days to a couple of weeks, especially if more information or documentation is needed about the homeowner's finances.
A homeowner will need to assess lender criteria to see how much equity they need to have built up in their home before they can release any. If the homeowner is still paying their mortgage or, has not paid off enough of their mortgage to build up significant equity in the property, they may not be able to get the required funding. Once a suitable lender has been found, the chosen representative can then submit an official application to release equity.
This application can take a week or so to complete depending on how promptly the required documentation is prepared and submitted. Once the application is in, the lender will arrange for an independent valuation of the property to confirm its current market value and determine how much equity can be released, as it is based on the percentage of the property’s value. The valuation should be completed within one to two weeks, however, this can vary depending on the availability of surveyors to carry out the valuation and it might greatly extend the equity release process.
Some lenders will not insist on a property valuation, however, all equity releases require a solicitor's involvement to carry out the transaction. As such, homeowners fully understand the implications of entering into an equity release agreement and will be offered guidance on its legal terms. After the valuation is completed and legal guidelines have been observed, the lender will make a formal offer.
The offer details the amount of equity that will be released, the interest rate (if applicable), and the terms of the agreement. This stage can take one to two weeks, depending on how quickly the lender processes the information and provides an offer. Upon receiving the offer, the homeowner will need to review the terms with their solicitor – before formally accepting – to ensure they are happy with the amount and the terms offered.
Offer accepted and agreement signed, the funds from the released equity are transferred, either as a lump sum or in instalments, depending on the terms of the deal. This can take up to two weeks depending on how efficient the applicant is with completing the paperwork, and how long the lender may take to process the completed agreement.
Mitigating Factors & Costs
It is not uncommon for the equity release process to encounter delays. Issues with property ownership, such as if the property is jointly owned and only one party is applying for an equity release can cause problems with an application. Additionally, complications regarding the title deed if incorrect with the Land Registry can slow the process further.
If there are concerns about the homeowner’s long-term financial situation, further assistance might be required to explore the viability of the equity release. If the lender is not confident that the homeowner's finances will be secure enough to meet the repayments on the loan, then they may reject the application or possibly, offer a lower amount for release. Despite challenges, with careful planning and working closely with professionals, delays should be easy to avoid.
It is important to consider the fees involved in working with professional financial and legal advisors for an equity release. There can also be substantial fees from the lender for their time, including in some cases, for carrying out a valuation of the property and arranging the equity release agreement.
Any costs of an equity release should be clearly explained and outlined by a financial adviser during an initial consultation, and by a solicitor before engaging their services. Some advisors and lenders may demand a portion of the overall release for their services, although, this is quite uncommon.
With the right advice and careful planning, an equity release can be a useful means of unlocking the value of a home, providing financial security or opportunity for investment for its owners. However, other financing options may work better for many homeowners before seeking an equity release, particularly if they have not built up enough equity in their home to release significant funds or, if they cannot make the repayments on both their mortgage, and equity loan.
