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Understanding Equity Release

Equity release is a good way to give over 55s the opportunity to release some of the money held in their property without selling it, offering them the freedom to do things that they may not otherwise have been able to do. That money could be to help family financially, to pay off debt or to fund day-to-day retirement costs. Meanwhile, some homeowners use it to travel or for home or garden improvements. With house prices having risen by 73% in ten years, according to latest Office of National Statistics figures, many people now have a considerable proportion of their wealth invested in their property which they want to benefit from – so how do you go about releasing that equity in your home?

What is Home Equity?

Home equity is the value of your property, minus your mortgage balance. For example, if your home is valued at £500,000 with a remaining mortgage debt of £200,000, you have £300,000 in equity in your property. Equity accumulates in two ways; by paying off the mortgage and through the appreciation of the property’s value over time.

How to release Home Equity?

There are two ways to release equity; lifetime mortgages and home reversion plans. Both choices provide a way to obtain funds for a range of purposes such as home improvements, debt settlement and supplementing retirement income.

What are Lifetime Mortgages?

Lifetime mortgages offer homeowners a way to access funds, either through a lump sum or regular payments based on their home’s value, whilst allowing them to retain ownership of their property. Typically, the amount borrowed along with any accumulated interest is repaid when the homeowner passes away or moves into long term care.

Key considerations

1. Eligibility: Homeowners must be at least 55 years old. The amount that can be borrowed is determined based on the homeowners age and the value of their property.

2. Interest: The interest on the loan can be compounded (added to the loan balance) or paid off periodically. When compounded, it means no repayments are needed during the homeowner’s lifetime unless they choose otherwise.

3. Repayment: The loan is settled when the property is sold – either upon the homeowner’s passing or when they move into long term care. Any remaining equity after repaying the loan and interest goes to the homeowner’s estate or inherited by their beneficiaries.

4. Safeguards: Reputable lenders ensure that homeowners never owe more than their property’s value through a ‘No Equity Guarantee’.

Pros and Cons of Lifetime Mortgages

Pros

  • Ownership Retained: Homeowners can still own their home and live there for the rest of their lives.
  • Tax Free Cash: The money received is tax exempt, providing a lump sum or extra income without affecting retirement benefits.
  • Flexibility: Homeowners have the choice to receive a lump sum, regular payments or set up a fund, for accessing funds as needed.

Cons

  • Interest: With interest accumulating over time the debt could grow rapidly potentially reducing the property’s remaining equity.
  • Decreased Inheritance: As a result of the accumulating interest and the eventual repayment of the loan there will be less inheritance for beneficiaries.
  • Expenses: Getting a lifetime mortgage involves costs, like valuation, legal fees and advisor fees.

Applying for a Lifetime Mortgage

You can apply for equity release via a solicitors’ Residential Conveyancing team such as ours. Once we complete the legally required ID checks, and receive and review your mortgage offer, we will meet with you in person to run through these documents for signing and sending to the mortgage company solicitors. Completion tends to take place between weeks 6 – 10. Following completion, the mortgage company solicitors will make an application to the land registry to register the new charge.

Sometimes, equity release applications can take many months to complete. Matters that can slow the process down include:

  • Unregistered properties
  • Deceased owners on title deeds
  • Lease extensions
  • Undisclosed information at application stages
  • Property down valuations
  • Separation agreements
  • Properties held in trust
  • Applying to the courts of protection
  • CCJ’s, cautions and restrictions on the title deeds
  • Discrepancies in the names of proprietor
  • Dicrepencies in property address
  • Merger of leasehold and freehold
Lifetime Mortgage / Equity Release, What Happens Next - Thomas and Thomas Solicitors

Alternatives to Lifetime Mortgages

A lifetime mortgage isn’t for everyone, but there are other ways to access cash.

Choosing to downsize your home and buy a smaller property is an alternative that can help you access some cash without needing to take out a Lifetime Mortgage or release equity.

Similarly, Retirement Interest Mortgages (RIOs) function much like lifetime mortgages, with the main difference being that you do have to make interest payments, which can prevent the loan from growing over time.

Another option is a Home Reversion Plan which involves selling a portion or all the property to a provider in exchange for a lump sum or regular payments, while retaining the right to live in the home rent-free.

While lifetime mortgages and other equity release options provide people with ways to access the money that is tied up in their homes, it’s important to consider factors such as interest accumulation and how this might impact any inheritance you plan to leave.

Getting advice from professionals who fully grasp the terms involved and will explore every option available to you is a crucial step in making a well-informed decision about your financial future.

For expert assistance in securing your retirement finances, our dedicated residential conveyancing team at Thomas and Thomas Solicitors offers a range of services. Please read through our next steps guide related to Lifetime Mortgages and Equity Release or contact us for support and information here.

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How to Sell Your Property Via Auction

Property can be sold in several ways, but have you ever considered selling your home in an auction? In January 2024, the number of properties sold under the hammer grew by over 49% compared to last year, and the market shows no signs of slowing down.

A property auction is a live bidding process, held either online or in person. Potential buyers compete to win a property up for sale by outbidding each other. However, there are variations of property auctions, and it’s important to understand the difference.

Putting your property into an auction is an exciting and potentially cost-effective alternative to a regular sale, and, while it may still be the path less travelled, the apparent uptick in property auction sales reflects a growing interest in buying and selling properties at auctions. But how do you go about it?

In this blog, we will provide a comprehensive overview of the various kinds of property auctions and their benefits, as well as how solicitors can assist in the process. We hope to leave you with a better understanding of your options and, most importantly, the knowledge to begin your auction journey.

Traditional Auctions vs. Modern Auctions

Traditional Auctions

Traditional auctions usually take place in person at an auction house or online, with several properties up for sale on a set day. They are often popular among property professionals who understand the system and can confidently make bids, as it is a rigid process with little room for error. As soon as the gavel falls and the auction is complete, contracts are exchanged and buyers are expected to pay a deposit that day (usually 10%), they then have approximately 28 days to complete the purchase.

Aside from this quick turnaround, the main appeal of selling your property in a traditional auction is the added layer of security; due to the strict rules around buying at auction, those in attendance are often ready to pay either on the day or imminently, reducing the likelihood of a lengthy process and buyers pulling out during the completion journey.

Traditional auctions are a good option for sellers who need to make the sale swiftly, and buyers who prefer cash. However, their fast-paced nature can intimidate inexperienced sellers and does not leave much time for a potential buyer to secure a loan or mortgage. This narrows down the pool of people who would be able to afford the property.

Modern Auctions

Modern auctions, on the other hand, take place purely online and are a little more flexible. Unlike traditional auctions, contracts do not have to be exchanged on the day of the bid, so it is not an immediate commitment. Instead, buyers have 56 days to complete the transaction, meaning that, while they are still committed to buying the property, they have a little longer to finalise a mortgage agreement.

Along with that same security blanket as a traditional auction, modern auctions are appealing for their online convenience and the additional time it affords potential buyers to secure their funding.

The lengthier process of a modern auction may be beneficial if you are looking for a quicker process than selling through an estate agent, but still need some time to get your affairs in order. However, there is no guarantee that your potential buyers will commit to the purchase, as they are not legally bound to complete it.

My Traditional Auction, What Happens Next - Thomas and Thomas Solicitors
My Modern Auction, What Happens Next - Thomas and Thomas Solicitors

Benefits of Auctioning Your Property

But why consider selling your property through auction at all? The process can be much faster and more secure than a traditional house sale, which may take several months in a property chain and can be subject to change depending on buyers pulling out. The journey itself can also be far easier and less stressful than selling through an estate agent, with less fees to pay, demands to negotiate and marketing to do.

What’s more, auctions often attract ambitious property investors and builders that are more likely to show interest in unusual properties or properties that need a little work done. The competitive spirit of the market encourages multiple bids, which may lead to a higher selling price than you were expecting.

How Solicitors Assist in the Process

Solicitors can help with a range of legal matters, and that includes the process of selling a property at an auction. To prepare, a solicitor will send you a welcome pack to complete and return with evidence of funding to prove you are able to pay the relevant auction fees.

Once initial checks, searches and payments are complete, and you have chosen the auction house you would like to sell through, an auction pack will be sent to your solicitor, which includes property details ahead of the sale itself.

Depending on what type of auction you are pursuing, the next few steps differ.

  • Before a traditional auction takes place, the auction pack will be shared with any potential buyers and their legal representatives. Your solicitor can also deal with any pre-auction enquiries on your behalf. The auction itself will then take place and, if there is a buyer, contracts will be exchanged. The buyer will also pay you a deposit, and after it goes through, you will agree on a completion date.
  • In a modern auction, we will write a report on the auction pack and share this with you. In the meantime, you can arrange any necessary surveys of the property. You would then reserve your property in the online auction by paying its agent a reservation fee. If a buyer is found, we will send you the contract documents to sign via email and then exchange them with the buyer. Then, a completion date will be agreed.

Selling your property via auction is generally much faster than going through an estate agent and the property ladder. Property auctions are an exciting opportunity for sellers who are comfortable with the possibility that their sale is not guaranteed. Selling your property in an auction should be considered carefully if you have the funds to do so, although it’s best to have other options in mind just in case the auction is not successful.

If you need help and support with selling your property through auction, our team of specialists at Thomas and Thomas Solicitors provide a comprehensive range of conveyancing services. For further support and advice, contact us here.