Can You Take Out an Equity Release Mortgage With A Lasting Power of Attorney?
Can you take out equity release with a power of attorney? The short answer is yes, but before we get into it, we want to explain some terms to help you better understand this question. First, what is equity release and how does it work?
Equity release is a method of earning additional money by unlocking the value of your property. Too many pensioners have dreamed about a comfortable retirement, where they can finally put themselves first, but the rising cost of living has meant they are spending all of their money on bills.
When people have worked their whole lives and paid their taxes, and yet they are still struggling financially, something isn’t right. That’s where equity release comes in.
If you are over 55 years old, and you own your own home in the UK, you could be eligible for equity release. The idea is that the value of your property, which isn’t yet benefitting you directly, could be tapped into.
You could take out a lifetime mortgage that doesn’t need to be paid back until your property is sold when you pass away. Alternatively, you could sell a share of your home in what is known as a home reversion and live in your home rent-free until you go into long-term care or pass away.
With either option, you have the opportunity to directly benefit from the value of your property rather than waiting for the benefit to kick when you have passed away or moved into long-term care. The amount you could borrow depends on your individual circumstances, such as your home’s property and location.
It is always advised to find an equity release adviser that is a member of the Equity Release Council (ERC) and is affiliated with the FCA (Financial Conduct Authority) so that if anything goes wrong, there will be a clear answer for you such as a complaints process.
With a power of attorney, an individual can be granted a legal right to make decisions on behalf of someone, usually relating to their health, finances, or property.
The idea behind a power of attorney is that some people are not able to make their own decisions, or they no longer want that burden, so it is more sensible for someone else to be appointed to do it for them.
Who Is Eligible to Have a Power of Attorney?
You must be over 18 to receive permission to implement a power of attorney. The criteria vary depending on which type of power of attorney you have, as some require the applicant to display mental capability, whereas others need proof that the individual cannot make safe decisions for themselves, such as a document or a certified copy of a diagnosis.
Who Can I Appoint as an Attorney?
Legally, anyone over the age of 18 can be an attorney, so there aren’t strict requirements when it comes to this. However, it is advisable to appoint an attorney who you trust deeply, as this reduces the chances of them taking advantage of you and your money.
Try to choose a trusted friend or family member who will always prioritise you rather than exploiting you. It may be a good idea to choose someone who is younger, as it can be complicated to replace an attorney, and one of the main reasons this occurs is that the initial attorney passes away.
You could elect your spouse or partner as an attorney. This can be a wise idea as they are usually the person you trust the most. However, again, their age may not be ideal. As dismal as it is to think about, you cannot trust that they will remain mentally sound for longer than you.
We would also advise choosing multiple attorneys if possible, as this means there are more people to support you and therefore there is less pressure on you to sort out your finances. It is also a resolution for the above problem, as if one of the attorneys passes away or is deemed mentally incapacitated, you would still have another attorney to help you out.
What are the Different Types of Power of Attorney?
There are three types of power of attorney, and these are: ordinary power of attorney, lasting power of attorney (LPA), and enduring power of attorney (EPA). LPAs were a modern alternative to EPAs that arrived in 2007, so EPAs are no longer implemented. However, if you already have an EPA, it will still be valid and adhered to.
1. Ordinary Power of Attorney
An ordinary power of attorney is often put in place for temporary decisions. For example, you may want someone else to make decisions for you while you are on holiday.
This type of power of attorney is designed for people who are mentally competent, and it will not be valid if this condition is not met. The idea is that people can make decisions about their future while they are still alive, which helps them to feel more secure.
2. Lasting Power of Attorney (LPA)
With an LPA, the power of attorney is implemented when people no longer have the mental capacity or decides they do not want to continue to make decisions for themselves.
3. Enduring Power of Attorney (EPA)
EPAs are used when an individual loses mental capacity or, again, decides they want someone else to make decisions about their care, finances and property on their behalf. EPAs are only valid if they were signed for before the 1st October 2007.
Can You Take Out Equity Release With a Power of Attorney?
Yes, it can be possible to release equity with a power of attorney. However, this isn’t always possible, so you need to speak to a solicitor to find out if you are still eligible.
Some factors that may affect your ability to take out equity are: the type of power of attorney that has been implemented for you, whether court protection comes into play, and when the power of attorney was signed.
For example, a lasting power of attorney will usually not intervene with equity release, though it may be necessary to provide extra details such as relevant essential legal documents relating to the LPA.
On the other hand, an enduring power of attorney with court protection is likely to be accepted by an equity release provider, but EPAs without court protection will be rejected.
Benefits of Having a Power of Attorney in Equity Release: Welfare
Anyone who releases equity must be aged 55 or over, so all consumers are heading towards their later years of life, and it is always wise to have a power of attorney in place as you age given that you cannot predict what your circumstances will be like further down the line. We don’t like to think about any negative things that could happen, but we must do this when considering our future.
One convincing reason to have a POA in place before you release equity is that you could be relieved of some of the burden of administration relating to equity release. Your appointed donors would also be entitled to sign documents and transfer money, which would make the process less stressful for you.
Another reason is that it is always wise to have multiple people involved with equity release. It is a big decision that will affect you and your family, so it is sensible to discuss this with several people, and if you already have some donors, this will naturally occur. This reduces the chance that you will jump into a plan that is not suitable for you, or make an unwise financial decision.
Finally, if in the future you do lose some mental capacity, you can lean on the fact that there are already processes in place to support you. Knowing that a trusted person can step in for you if necessary can be incredibly comforting, as you don’t have to fear the future in the same way, and instead you can have peace of mind that your finances and property will be taken care of.
Downsides of Releasing Equity With a Power of Attorney: Instability
Firstly, some people are not comfortable signing away their ability to make decisions for themselves, so you may decide you would rather avoid this option.
Secondly, the process of implementing a POA is not always straightforward, and it becomes even more complicated when a donor dies. This may add unnecessary stress to your life when you are already trying to deal with equity release.
Finally, it is possible that you do not have anyone that you trust to intervene for you with such serious decisions, and in this case, giving someone the power to act on your behalf when you do not believe they are trustworthy is too risky an option, so you may decide to do nothing at all.
Is it Difficult to Have a Power of Attorney For Your Equity Release Mortgage?
It is easier than ever to take out equity with a POA. In fact, these days, many equity release plans involve a POA, so you can get involved with both processes at once. This means you can get started with equity release as soon as you want to, as you don’t have to wait around to arrange your POA first.
Can You Take Out Equity Release With a Power of Attorney On Behalf of Your Parents?
Yes, you can release equity on behalf of your parents if you are a donor with a legal POA. You must demonstrate that you are acting in your parents’ best interests when you do this, so it is required to provide proof that releasing equity would help your parents.
What Happens If I do not have an LPA In Place For My Lifetime Mortgage or Home Reversion?
If you don’t have an LPA in place for your lifetime mortgage or home reversion, you are taking a significant risk as you never know if you could be impacted by a disability or even just a product of old age, that could impede on your ability to make safe decisions for yourself.
Without the opportunity for a loved one to help with these decisions, they are likely to become very stressed as they will not be able to support you in the way they would like to, and the way that would be possible if an LPA was in place.
If your loved ones decide to take matters into their own hands and attempt to have a say over what happens to you, they will have to pay out to go to court. Not only will this be costly, but it will also take up a lot of their time and energy when they are already worried about you.
When Should I Make an LPA & When Will It Be Valid?
It is advisable to make an LPA when you sign up to release equity, as they can work well together and prevent the process from being too complex. It is also wise to make an LPA sooner rather than later as you are currently in the headspace to do it, and this may not be the case later on.
Can Equity Release Warehouse Help?
Equity Release Warehouse can help you with suggestions on legal arrangements you need to consider, such as power of attorney for property, checking title deeds, completing paperwork, and performing identity checks. We can also point you in the direction of independent legal advice, which is where you will deal with the details of power of attorney arrangements.
If you are considering taking out equity but you are still not convinced, we are happy to have a conversation with you and discuss the benefits and drawbacks of opting into an equity release scheme. The pros and cons will vary depending on which specific plan you select out of a lifetime mortgage (of which there are many arrangements) and a home reversion.
We can also discuss alternatives to releasing equity. The main alternative is downsizing, and there are advantages to this as it is less financially risky. However, it can be more taxing and it is not possible for everyone due to the challenging property market. However, we will happily tell you about the prospect of downsizing if this is something you are interested in.
For more information about equity release and the many things you must consider before doing it, see our help centre. We also recommend checking out our plans page, where you will see all the different options that are available to you with regards to taking out equity.
Finally, do not miss our free equity release calculator, where you can figure out how much money you could release from your property if you are eligible. A more accurate figure will be calculated after you give consent for an official valuation to take place.
As a reminder, to be eligible for equity release, you must be over 55 years old (or over 65 for a home reversion), and you must own property in the UK that is at least £70,000. Certain things can boost your application, such as having a great credit rating, living in a desirable area, or having an illness that means you are more in need of financial aid.
However, if none of these bonus factors apply to you, you could still take out equity and use it for whatever you see fit.
People often spend the additional costs as a lump sum on a family holiday or a car, others use it to pay their bills each month, and some people even go with a second home mortgage plan and use the money to purchase a property to rent out to people. This is a great idea as you could receive a constant stream of income doing this, which would make your retirement a bit less stressful.
Whatever you decide to do, we invite you to reach out to us to share your journey with you. For a callback, please input your contact details on this form and we will respond as soon as we can. For an even quicker response time, call us on 0330 058 1579 any time from 8 am-8 pm any day of the week.