Equity Release on a Bungalow

Equity release is a way of gaining access to the cash that is locked up inside your home, without having to sell and downsize.

Many pensioners are getting to retirement age and are finding that they do not have enough cash in the bank to keep up with the cost of living.

What they do have, however, is a significant amount of equity in their property due to the property boom many 50-80 year olds experienced.

This is where equity release comes in. By releasing equity from your home, you get to remain living in your home and are free to spend that money on whatever you want [1].

If you own a bungalow and need access to some more cash, then you will be happy to hear that you are in fact able to release equity on your bungalow, as long as your bungalow is valued at £70,000 or more.

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How does equity release work?

When you opt for equity release, whether that is on a bungalow or not, then you release a set amount of cash from the equity that has built up inside your home.

This includes the initial deposit you put down on the house or bungalow, as well as the month mortgage repayments you have been paying (minus any interest) and any increase in value your property has experienced.

You do not need to repay the loan until after you pass away or move into a care home. Once you do, the proceeds from the sale of your home will repay the loan in full.

This should cover the initial loan amount, including any interest. Yes, interest. You will need to pay interest on your loan, although this will be fixed and compound year on year, increasing your overall loan amount.

The proceeds from the sale of your home should almost always cover the loan amount. However, if it does not, then your lender will step in with what is known as the negative equity guarantee.

This guarantee assures homeowners that if your property decreases in value for whatever reason, then your lender will step in to pay the difference, so you do not have to.

There are two main types of equity release, known as lifetime mortgages or home reversion plans.

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What are the different types of equity release?

There are two types of equity release in the UK. The first type of equity release is a lifetime mortgage, ideal for anyone who wants to release a large amount of money from their home but does not want to sell:

1. Lifetime mortgage

Lifetime mortgages are the most popular type of equity release across the UK. You secure the loan against your home but do not repay the loan until after you pass away or move into a care home [2].

When you do so, your loan and any interest will be paid off in full [2].

2. Home reversion plan

With a home reversion plan, you have to sell a percentage of your home to the lender before you can gain access to the cash.

You get to remain living in your home, but the lender will own a set percentage of your home.

The home reversion lender will then get a share of the proceeds of your home or bungalow when your home is sold, after you pass away or move into a care home.

However, it is important to understand that if you opt for a home reversion plan, the lender will buy a set share of your home from you for less than market value.

This means that you would get less than if you were to sell it on the traditional housing market [2].

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Factors influencing whether you will be approved for equity release

Whether equity release is an option for you depends on a few things. Some of these factors are explained below.

1. Your age

Your age has a huge impact on whether or not you will be approved for equity release and if you are approved then how much you will eventually get.

When it comes to lifetime mortgages, you have to be aged at least 55 years old.

If you are opting for a home reversion plan, then you need to be aged at least 60 or 65 years old, depending on which lender you opt to go with.

The older you are, the more you will get released from your home. This is because equity release lenders want to get their money back as soon as possible, via the proceeds from your home once it is sold.

This will only ever happen once you pass away or move into a care home. So, the older they are then the more likely they are to get their funds back quickly.

2. The value of your bungalow

As with any type of equity release loan, your home must be valued at £70,000 or more in order to qualify for equity release.

This property must also be your main residence, and must be in reasonable condition. To check this, someone will come into your home to carry out a home valuation.

You must also have paid off the majority of your pre-existing mortgage before applying for an equity release loan.

If you do qualify for an equity release loan, then you will most likely have to use the money you receive to pay off anything left on the pre-existing mortgage.

3. Your family

If you have any family remaining living in your property, then you will need to inform them of your equity release plans.

If they wish to remain in living with you once you have taken out your equity release loan, then they will most likely need to sign a waiver to confirm that they understand that they won’t be able to remain living in the property once you pass away or move into a care home.

Once this happens, they will need to move out and the house will be sold.

If you are living with someone who is considering opting for equity release on their bungalow or home, then you should seek your own independent legal advice.

Please call our 24-Hour Helpline: 0330 058 1579

What are the advantages and disadvantages of equity release on a bungalow?

There are numerous advantages and disadvantages associated with releasing equity in your home.

Whilst equity release might not be for everyone, at Equity Release Warehouse we work with you to establish whether or not it is equity release you need, or an alternative option.

1. Advantages of equity release in a bungalow

There are numerous advantages related to opting for equity release.

The main advantage is that you gain access to a tax-free lump sum or smaller drawdown payments which allow you to remain living in your home and spend the money you receive on whatever you want.

The other benefit associated with equity release is that you are also able to move into another property in the future, as long as it’s accepted by your equity release provider.

Likewise, you are able to make early repayments or simply pay off the interest on your loan each month.

This will allow you to keep the interest and compound interest at bay, which will reduce your overall loan amount.

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2. Disadvantages of equity release on a bungalow

There are also some disadvantages when it comes to opting for equity release.

For example, by opting for equity release, you are reducing the amount of inheritance your family will be receiving.

Most people receive inheritance via the proceeds from the sale of the home.

However, when someone opts for equity release, the proceeds from the sale of the home will pay off the loan, rather than going to your next of kin(s).

You are also charged interest when you opt for a lifetime mortgage. This interest will compound and roll up, meaning that your overall loan amount will increase significantly over the years.

This means that unless your home increases in value significantly, the proceeds from the sale of your home will be used entirely to pay off the equity release loan.

Speak to Equity Release Warehouse

If you own a bungalow and are considering releasing equity from your home, then speak to a member of the team from Equity Release Warehouse.

Our team of specialist advisers will be able to provide you with all of the information necessary to make an informed decision.

Our team of advisers will be able to recommend which lender is best and provide an estimate on how much money you might be able to release from your bungalow or property using our equity release calculator.

To start your equity release journey, please call a member of the team today 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/

[2] https://www.equityreleasecouncil.com/what-is-equity-release/

[3] https://www.thetimes.com/money-mentor/mortgage-property/equity-release/equity-release-alternatives