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Adviser
Generally there are two types of advisers who can make recommendations on equity release products. Independent financial advisers who don’t depend on equity release products from a specific provider and can thus search the whole market for suitable and competitive offers, or advisers who are not independent and can only give you advice about products from one provider or a panel of providers.
Annuity
An annuity is a plan that provides you with a stream of payments in return for a cash lump sum. The income is determined by prevailing annuity rates, as well as your age and sex at the outset.
Base rate
The base rate is set by the Monetary Policy Committee and determines at what rate the Bank of England lends money to other financial institutions.
Capped rates
This type of interest rate comes with a fixed upper limit, so the rate will not exceed a specific value for a guaranteed period. However, the interest rate can fluctuate up and down beneath the set cap.
Compound interest
Compound interest describes a method where interest is charged on the loan amount as well as previously accrued interest.
Deposit accounts
The difference to a regular current account is that there is usually a higher rate of interest paid on the saved money. Some deposit accounts come with a notice periods of 30, 60 or 90 days, whereas others can be accessed immediately. Deposit accounts can be used to store emergency funds.
Drawdown plan
This type of plan differs from a conventional lifetime mortgage by allowing you to draw down cash in stages. You also have the flexibility to withdraw the money when you wish. An independent specialist adviser can tell you all about the variety of drawdown plans available.
Early repayment charge
Describes a fee that is applied when a loan is paid back early. This fee is charged by some lifetime mortgage providers, since lifetime mortgages are generally designed to last for the rest of your life and the loan is not expected to be repaid until your death.
Equity
Equity is the value of your home minus any outstanding mortgage or loan secured against it.
Equity release
With equity release you can unlock a tax-free cash lump sum or regular income from the value of your home. There are typically no monthly repayments necessary.
Estate
The term estate refers to all your assets, including your home, possessions and any savings or investments.
Fixed rate
With fixed rates, interest rates charged on an equity release plan will not move with any changes to the Bank of England base rates. This is the case for most lifetime mortgages.
Freehold
The term freehold describes an estate in land in common law. It means that you have ownership of a property.
FSA
FSA is an abbreviation for “Financial Services Authority”. This body regulates the equity release market and its aim is to make sure that consumers are protected from poor advice or unfair sales methods.
Home income plan
A home income plan can either be taken out as a reversion plan or as a lifetime mortgage. As the name suggests, this type of plan enables you to use equity release as a means to get a regular fixed income for life.
Independent equity release adviser
An independent equity release adviser doesn’t depend on a particular provider and so can search the whole market to recommend the most suitable and competitive plan tailored to your needs. They must offer you the choice to pay by fee and return the commission from the plan provider to you. If they do not offer this option, then they cannot be independent.
Inheritance tax liability
Inheritance is the value of your estate that will be left to your heirs upon your death. From April 2008 40% inheritance tax applies to the value of your estate that exceeds £312,000. This liability could be reduced with equity release.
Interest
Charges which are added to a lifetime mortgage on a monthly or annual basis, depending on the criteria of the specific plan.
Leasehold
By buying the leasehold of a property, a lessee or a tenant is granted the right to occupy an estate for a given length of time by the freeholder (i.e. the lessor or landlord) in the form of a lease.
Lifetime lease
A home reversion plan comes with a lifetime lease which means that you can stay in your home for the rest of your life and this typically is rent free.
Lifetime mortgage
With this type of equity release plan, a loan is secured against your property in order to release cash. There are typically no monthly repayments and the loan is usually repaid on the death of the last surviving partner or their entry into long term care. An independent specialist adviser can offer you a wide choice of lifetime mortgages to provide you with a cash lump sum or regular income or, a combination of both.
Monthly repayments
In contrast to conventional mortgages, there are typically no monthly repayments required when taking out an equity release plan, since the loan is repaid upon the final sale of the house.
No-negative equity guarantee
All SHIP (Safe Home Income Plans) approved plans come with this guarantee which ensures you will never owe more than the value of your property, no matter how its value might change over time.
Personalised illustration
A personal illustration sets out the details of your recommended plan, and helps you to understand the features and risks.
Provider
A provider offers equity release plans to customers. Equity release providers generally recommend customer seek specialist financial advice before committing to an equity release plan in order that they fully understand all the features and risks involved.
Reversion Plan
With a reversion plan, you sell part or your entire home to a provider and receive a tax-free cash lump sum in return. You also have the right to stay in your home for as long as you wish. An independent specialist adviser can give you more details on the different reversion plans available.
SHIP
SHIP is short for "Safe Home Income Plans". This organisation was established to ensure the protection of customers who take out a safe home income or equity release plan. Membership is voluntary but companies who are members of SHIP follow a code of conduct focusing on customer safety.
Standard construction
This term means that the property is constructed using normally accepted techniques and conventional materials like bricks and mortar with a tiled or slate roof.
State benefits
Taking out an equity release plan could have an effect on your entitlement to state benefits like pension credit. An independent specialist adviser or the Department of Work and Pensions will be able to help you to find out whether they would be affected.
Survey
A survey is an inspection of your property which tells the product provider how much your property is worth, and its condition.
Top Ups
A "top up" describes the process of releasing an additional amount of cash when you’ve already released money at an earlier stage. It is necessary to apply for it and it is not usually guaranteed that you will be able to release more money.
Variable rates
A variable interest rate adjusts to any increase or decrease in the Bank of England base rate or the Retail Prices Index (RPI). Some lifetime mortgages charge interest with variable rates.