Ask the Experts: How can my grandmother release some cash from her property?

Lisa Vaughan
23 June 2017

Q

My grandmother owns her own property that she lives in and would like to release some cash from it. What are her options?

From
LS/Kings Lynn

A

There are many people who wish to unlock the value in their home. One way to do this is via an equity release scheme.

One equity release option is for your grandmother to take out a lifetime mortgage. This would allow your grandmother to raise the amount required by taking out a mortgage secured on her property, while retaining ownership. The mortgage provider charges interest on the amount outstanding, but your grandmother may not have to pay anything back until she sells the home or passes away.

Beware though, a lifetime mortgage can prove expensive as the mortgage interest is rolled up over the lifetime of the mortgage. This means the debt could have potentially doubled in as little as 11 years. Some lifetime mortgage providers allow the borrower to have flexible access to a borrowing limit and be able to make interest payments each month, which can help reduce the interest costs over the mortgage term. Look out for schemes with no early repayment charges or those that apply for a shorter initial period only.

Alternatively, your grandmother could sell her home or a share of it to a home reversion provider in return for a lump sum or regular payments. She could continue to live in the home for the rest of her life, and the provider would eventually get its share back when the property is sold. This normally occurs when someone moves into long-term care or when they die. Beware though, the home reversion provider normally buys the property for an amount that is lower than the property’s market value.

Choosing equity release may also affect your grandmother’s entitlement to state benefits.

There are alternative ways for your grandmother to raise cash, which may be more suitable than equity release, depending on her circumstances.

She could take out an unsecured loan if she requires a modest amount, assuming she can afford the repayments. This may work out cheaper in the long run.

If a larger sum is required, she could consider selling her home and downsizing to a smaller property, which will unlock some of the property value. However, she would incur expenses such as estate agent, legal and removal costs.

Also, check whether your grandmother is entitled to certain benefits and grants. Those on a low income who are borrowing for home improvements or conversions to deal with disability may qualify for local authority grants.

Your grandmother should speak to a suitably qualified independent financial adviser before deciding which option to take. I would also suggest she takes independent legal advice.