When Equity Release in One Partner’s Name Leaves the Other with Nothing
If you or someone you know has taken out an equity release plan, then you will know that equity release can provide you with a valuable source of money, allowing homeowners over the age of 55 years old to access some of the wealth that is tied up in their property without having to move home.
For couples, however, there is an important issue that should never be overlooked, and that is whose name is actually on the equity release plan and the property title?
If equity release is taken out in only one partner’s name, the other person may have limited protection or right to the home or money if the homeowner dies or moves into long term care for health reasons.
Usually, the property will need to be sold in order to repay the outstanding equity release loan, leaving the remaining surviving partner facing the prospect of having to move out of the home, with nowhere to go.
This situation can be particularly relevant if you took out an equity release loan in your name, but not your partners.
This is usually the case when one partner is over 55 and the other is younger, as equity release is only available to those aged over 55 years old.
Although taking out an equity release loan in the older partner’s sole name might appear to be a straightforward solution when this is the case, it can have serious consequences for the younger partner later down the line.
Understanding the consequences of this before taking out an equity release loan could help couples up and down the country avoids an extremely difficult situation later down the line.
How does equity release work?
Equity release is available to anyone over the age of 55 years old who owns a property worth more than £70,000.
It allows eligible homeowners the chance to gain access to the money that is tied up in their property, including the initial deposit amount and equity that has built up, without selling their home to downsize [1].
The most common form of equity release is a lifetime mortgage. With this type of plan, the equity release loan continues until you pass away or move into a care home.
Once this happens, the property is sold and the proceeds pay off the loan. Over time, interest can build up, increasing the amount that is eventually owed.
The proceeds from the sale of the home almost always cover the loan amount, although homeowners are protected under the no negative equity guarantee if it does not, meaning that the lender will pay off any difference [1].
It is important to understand that equity release is a long term financial commitment that can have an impact on your inheritance, your future plans and your eligibility for certain means tested benefits.
Homeowners aged 55 and over might be able to access equity release loans, although the eligibility criteria differ between lenders.
For an individual homeowner, most equity release loans are straight forward. However, for a couple living together in the property, things can become more complicated especially if only one of you owns the property or takes out the loan in their name.
What happens to equity release when you pass away?
When an equity release plan ends because the borrower has died, the outstanding amount normally needs to be repaid via the sale of your home.
With a lifetime mortgage, this will usually involve selling the property within 6 months of passing away and using the proceeds from the sale of the home to repay the loan itself as well as any interest that has accumulated over the course and duration of the loan.
It is important to understand that if the property is worth more than the outstanding equity release loan left to be repaid, then the remaining equity can form part of your estate, which will go to your loved ones and next of kin as inheritance.
The problem arises when someone else is living in the property but does not have the same rights as the person who took out the equity release loan. Unfortunately, that person might suddenly find themselves having to decide to leave their home, even if they have lived there for years.
What happens to my partner if I die?
This is one of the most important questions couples should ask their equity release adviser before taking out an equity release loan.
If an equity release plan is held in both of your names, then the surviving partner will generally be able to remain living in the property under the terms of the plan after the first partner dies.
However, it is important to understand that a sole-name equity release plan is usually different.
In fact, the Equity Release Council explains that where a plan is in one person’s name only, then the property might need to be sold after their death unless the outstanding mortgage can be repaid in another way, such as savings or being gifted the money from a child or loved one.
In that situation, the partner who is not named on the plan might have to find somewhere else to live unless they can pay off the loan without having to sell their home.
Naturally and understandably, this can come as a devastating shock especially if you are of a certain age.
This is true despite the fact that the couple in question might have lived together for decades, shared household bills, raised children in the property and regarded the house as their family home for decades.
Despite all of this, if only one person owns the property and holds the equity release plan, simply living in the property for years does not necessarily give the other person the same rights as the homeowner.
This is why the ownership structure of your property needs to be considered before taking out an equity release loan.
Any good equity release adviser will ask you to check the deeds of your home and ask you about the ownership structure before they recommend a suitable equity release loan.
Why might equity release be taken out in one partner’s name?
There are a number of different reasons why couples might choose to take out an equity release loan in just one of their names, instead of both of their names.
For example, one of the circumstances in which this issue can arise is when partners are different ages.
This sometimes happens because most equity release products have an age requirement, with 55 commonly being the minimum age for most lifetime mortgages across the UK.
This can create a number of problems for couples where one person is over 55 but their partner is younger than them, even if it’s by just a year.
Any couples with even a small age gap might discover that a joint equity release plan is not available because the younger partner does not meet the relevant age criteria.
The temptation for a lot of people is to then proceed with the equity release plan in the older partner’s name alone.
On the surface, this could appear to solve the immediate financial problem. The couple will receive the money they need and will continue living in their home.
However, iIf the older partner dies while the younger partner is still living in the property, then the equity release debt may become repayable even if the living partner needs to remain living in the home.
If the surviving partner cannot repay the equity release loan from other funds, selling the property might be the only option.
Living together does not necessarily mean owning the property
It is easy to assume that being married, in a civil partnership or having lived together for many years automatically gives someone ownership of their partner’s home.
However, it is important to understand that property ownership does not work quite that way. Your legal position depends on how the property is owned and whose name appears on the title and deeds of the property.
In fact, GOV.UK explains that when a property has a sole owner, there are different legal considerations to consider then that person dies compared with a jointly owned property [2].
It is also possible to add someone as a joint owner of a property after the property has been bought, even if you have lived in the property for decades, subject to the appropriate legal process.
Whilst a Will can be extremely important when it comes to estate planning, it does not necessarily provide people with the same protection as being a joint owner of the property and likewise a joint participant in the equity release plan.
What if my partner is named in my Will?
It is important to understand that having a Will is incredibly important, as it can help to determine what happens to someone’s estate after they pass away.
However, couples should not assume that leaving the house to their partner in a Will automatically solves the issue if only one of their names is on the equity release loan.
This is because when an individual takes out an equity release loan and passes away, there is still an outstanding loan secured against the property which will need to be repaid.
Even if there is a Will in place, the debt will generally be dealt with first before the estate can be distributed to those who are named in the Will.
If the surviving partner inherits the property but cannot repay the equity release balance, they might still need to sell the house in order to settle the outstanding equity release loan and debt.
Could the surviving partner pay off the equity release?
Yes, the surviving partner might be able to pay off the equity release loan. If the surviving partner has enough money available, they may be able to repay the outstanding equity release balance and remain living in the property.
They could potentially use their savings, other investments, inheritance or another source of finance to pay off the outstanding loan.
However, it is important to understand that the amount owed could have grown considerably over the years because the interest will have compounded over the years.
This means the eventual balance could be considerably higher than the original amount borrowed.
The surviving partner would therefore need to determine whether or not they could realistically repay the outstanding balance without having to sell their property.
What should couples check before taking equity release?
Before proceeding with an equity release loan, couples should consider a number of things, including whose name is on the property by checking their deeds.
They should also consider whose name will be on the equity release plan, and what the plan will be if they are not able to put each other on the loan together.
Could downsizing be an alternative?
It is important to remember that equity release is not the only way to access the equity in your home. Depending on your circumstances, downsizing might be a better alternative.
Selling a larger property and purchasing a cheaper one could release a significant amount of money without having to take out an equity release loan and creating an equity release debt.
Likewise, there might also be other mortgage or later-life lending options that are worth considering.
The right choice depends on a number of different factors, including your income, your age, health, the value of the property, whether or not you have any existing borrowing or debt, your future plans and the amount of money that you need.
Conclusion
As discussed above, taking out an equity release plan is a decision that can affect more than the person signing the paperwork. For couples, it can affect the person who remains behind after a homeowner passes away.
This risk can be particularly relevant when one partner is under 55 and therefore cannot be included in the equity release loan.
This is why getting professional financial and legal advice is incredibly important when it comes to helping couples better understand the ownership, borrowing and legal implications of taking out an equity release loan.
When it comes to taking out an equity release loan, knowing exactly what happens if one person dies should be considered just as important as knowing how much money can be released.
For advice and support, speak to our friendly and helpful team at Equity Release Warehouse by calling us for free on 0330 058 1579 or by visiting us online at www.equityreleasewarehouse.com.
References
[1] https://www.ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/
