Will Equity Release Affect My Pension Credit?
Lots of people worry that taking out equity release loans will affect their eligibility to apply for means-tested benefits, including pension credit.
Unfortunately, taking out an equity release loan will have a significant effect on this, which is one of the main disadvantages to equity release. If you are wondering ‘Will equity release affect my pension credit?’ then continue reading.
Will equity release affect my pension credit? What is equity release?
Equity release is another type of loan, offered to those aged 55 or over. Essentially, equity release is a way of using the equity in your home whilst being able to remain living there.
Everyone knows that a house is an asset, which many people only really ever see the benefit of when they sell their property. However, equity release loans allow you to remain living in your home for as long as you want, whilst being able to spend the money that has built up in your home.
You can use this money as a way of maintaining a good lifestyle during your retirement, or as a way of paying for care costs, a big family holiday or a new car.
You are able to release the money from your home in one large lump sum, or through a number of smaller steady streams, which is known as a drawdown plan.
There is a range of different equity release loans and products. However, the two main types which are commonly used throughout the UK are lifetime mortgages and home reversion plans [1].
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1. Lifetime mortgages
This is the most popular type of equity release used throughout the UK. In order to qualify for a lifetime mortgage, you have to be aged over 55 years old and own your own home. This property must also be your main residence, and not just a holiday home you spend a few weeks or months a year in.
You will never be asked or forced to move out of your home if you opt for a lifetime mortgage.
Lifetime mortgages last for as long as you live, meaning that you do not have to repay the loan until you pass away or are simply no longer able to remain living in your home, such as moving into a care home.
Your equity release loan will only be repaid once you pass away or move into a care home. At this time, your house will be sold and the loan will be repaid. This means that your loved ones might not get as much inheritance as they might have hoped.
You will also be charged interest on your lifetime mortgage, which will quickly compound. Compound interest means that you will have to repay more as the years go on.
Hopefully, your house would have increased in value during this time, meaning that the sale of your house will cover the entire cost of the loan.
Do not worry if your house has not increased in value or has decreased. If your property no longer covers the loan amount then the lender will step in and pay the difference. This will never fall on you or your family to pay back [1].
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2. Home reversion plans
Home reversion plans are the less popular choice, as they are only available to those aged 65 or over. With home reversion plans, you will be forced into selling a percentage of your property to the lender in return for the equity (cash) in your home.
It is important to note that if you opt for a home reversion plan, the amount you sell a percentage of your property to the lender for will be a lot less than the current market value.
However, you will get to remain living in your home instead of being forced to move out for access to more money [1].
If you are considering equity release but are wondering ‘Will equity release affect my pension credit?’ then talk to a member of our team at Equity Release Warehouse for more information.
Please call our 24-Hour Helpline: 0330 058 1579
Will equity release affect my pension credit?
If you are considering equity release, then you will need to think carefully about how taking out an equity release loan will affect any benefits that you are entitled to. Taking out an equity release loan will impact any means-tested benefits you receive, such as pension credit.
If you do receive any means-tested benefits such as pension credit, then you should make your equity release adviser and lender aware of this, as they might decide that equity release is not for you.
Even if you do not currently receive any means-tested benefits, such as pension credit then you will still need to think about your future plans and needs.
If you are unsure as to what you currently receive in terms of benefits, then you should opt for a full benefit check before officially applying for equity release.
Unfortunately, lots of people who are entitled to means-tested benefits do not even know that they are entitled to them and are therefore missing out on additional income.
This is why it is incredibly important to run a benefits check before taking out an equity release loan, as equity release loans are expensive and time-consuming [2].
When it comes to pension credit and equity release, things are not always straightforward which is why it is important to seek independent advice.
If you are considering equity release but are wondering ‘Will equity release affect my pension credit?’ then talk to a member of our team at Equity Release Warehouse for more information.
Please call our 24-Hour Helpline: 0330 058 1579
What other benefits will be affected by taking out an equity release plan?
If you are wondering ‘Will equity release affect my pension credit?’ then you might also be wondering about other types of benefits.
Taking out an equity release loan will affect any means-tested benefits that you are entitled to. This could reduce the amount you receive significantly, or cancel them altogether.
This includes all types of means-tested benefits, such as Pension credit, Universal credit and any council tax reductions. It also might affect any funding you might receive for care costs.
Which benefits are not affected by equity release?
There are a lot of other types of benefits that will not be affected by taking out an equity release loan. For example, if you receive disability benefits then this will not be affected by taking out an equity release loan.
Likewise, if you receive personal independence payments (PIPs) then this will not be affected, either. PIP is when you get help with any long-term care costs for either you or someone you care for.
If you are considering equity release but are wondering ‘Will equity release affect my pension credit?’ then talk to a member of our team at Equity Release Warehouse for more information.
Please call our 24-Hour Helpline: 0330 058 1579
What happens if you opt for release equity while claiming a pension?
It is important to understand that whilst your pension credit might be affected by equity release, your pension (whether that be state or private) will not be affected.
Your state pension is not affected by equity release because it is based on your national insurance contributions, so is guaranteed as long as you have been contributing to the system.
If you are considering equity release and are claiming a pension but are wondering ‘Will equity release affect my pension credit?’ then talk to a member of our team at Equity Release Warehouse for more information.
What are the advantages of equity release?
There are many advantages to equity release. For example, you will never be asked to move out of your home for as long as the loan lasts. This means that you can enjoy living in the comfort of your own home for as long as you want.
You are also able to spend the money you receive on whatever you want, including any home improvements or family holidays that you might want to treat the family to. You also do not have to repay a penny of your loan if you don’t want to.
However, those who do want to pay off some of their loan whilst they are still alive are able to do so. This will go a long way in reducing the overall loan amount and compound interest added to your loan [3].
Despite the disadvantages, equity release is still the right option for any people. If you are considering equity release but are wondering ‘Will equity release affect my pension credit?’ then talk to a member of our team at Equity Release Warehouse for more information.
Please call our 24-Hour Helpline: 0330 058 1579
What are the disadvantages of equity release?
Likewise, there are a number of disadvantages associated with equity release. For example, you will be charged compound interest on your loan which will increase the total loan amount significantly.
As previously discussed, opting for equity release will also impact your ability to receive or apply for any means-tested benefits, including Pension credit and Universal credit [3].
Your next of kin(s) will also receive less inheritance than they would if you didn’t opt for equity release, unless your house increases in value significantly and you are able to pay off some of your loan each month whilst you are still alive.
In addition to this, you have to pay a number of fees when opting for equity release. This will include a home valuation of around £200, the cost of an equity release solicitor and an adviser which could cost approximately £1,000 [3].
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Will equity release affect my pension credit? Get in touch with Equity Release Warehouse
If you are wondering ‘Will equity release affect my pension credit?’ then it is best to talk to someone at the Equity Release Warehouse team.
Our teams will talk you through the ins and outs of any means-tested benefits you might receive and how this will be affected if you opt for equity release.
It is always recommended to talk to an equity release adviser before applying for equity release, to check how this might affect your ability to receive pension credit and any other means-tested benefits.
References
[1] https://www.ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/
[2] https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs65_equity_release_fcs.pdf
