Equity is the percentage of your home that you own outright and which is not still being repaid on a mortgage. The term equity release refers to a range of products designed to allow you to release the equity tied up in your home, without the need for you to sell your property.
An equity release plan is a good way to turn equity tied up in your estate into something that is tangible and can be used.
The equity release sales process is currently the most streamlined it has been since it was conceived. The whole equity release process for a lifetime mortgage usually takes an average of four to six weeks to complete. If you have plans to make a purchase using this money, the timing of the application is therefore very important.
If you are in a hurry, then certain measures can be taken to speed the process along. You could use an experienced solicitor who knows the providers and their requirements as this is likely to speed up the process.
The lender needs a four to six week duration to process your application in order to go through the following four steps:
The first steps
The whole process begins with the completion of an application form that comes in conjunction with financial advice. Equity release providers do not accept applications without it. It is at this stage that any fees (which should be laid out clearly in the Key Facts Illustration (KFI)) will require paying. This includes the lender’s valuation fee. There are a few equity release brokers who charge an application advice fee in addition. You should beware of paying such unnecessary upfront fees.
Once you complete the application form, it is usually submitted to the equity release provider who instructs a local surveyor to conduct a basic valuation on your property.
The surveyor’s role is to complete a report which will advise the provider of the current market value of your property, based on a quick sale. The surveyor also assesses what price similar properties in your area sold for in the past 3-6 month period. They also ascertain if there are any essential repairs needed in case the property has material defects that could influence the resale-ability of the property or its long term structure.
It is advisable for the legal process to get underway at the same time as the application gets submitted. This is simply for speed of completion. Unless you prefer using a family solicitor, it is recommended that you use an equity release solicitor from the Equity Release Solicitors’ Alliance (ERSA).
The ERSA are a panel of experienced equity release specialists. The advantages of using one of these specialists include speed, experience, understanding of all the issues involved, and good communication. They are efficient, used to dealing with equity release providers so know the processes inside out, and can facilitate quick completion timescales.
The role of the solicitor
There has to be two sets of solicitors in place to carry out the process.
Under Equity Release Council rules, different solicitors are employed on behalf of the lender and the client.
The solicitor acting on the client’s behalf sends out an initial questionnaire requesting further information. This happens once they are given instructions by the client or the broker. This includes a request for details to understand if any mortgage exists, any restrictions, the title’s owners, major improvements made with respective planning permissions.
The questionnaire also grants permission for the prospective solicitor to represent them.
Are there existing mortgages or secured loans?
Any existing charges in the form of mortgages or secured loans must be removed before or upon completion.
Mortgages are normally settled by the proceeding from the equity release scheme at the stage where funds are released. However, the solicitor will also establish the exact amount required on the proposed completion day.
This is normally achieved by asking for a redemption statement from the mortgagee. The mortgagee provides the current balance together with the daily accrual rate of interest that will be added during the interim period to the completion date.
In order for an application to make it to completion, the lender carries out certain checks to meet money laundering and the consumer credit act requirements.
This will require proof of identification including a driving license, passport or government backed evidence such as your annual state pension letter.
In cases where none of these are available, most lenders require a marriage and/or birth certificate as proof of who you are. Proof of address might also be required, therefore a recent bank or council tax statement can be needed.
Equity release and adverse credit
Some lenders carry out credit checks. The lenders argue that if a person has been negligent with credit payments before, they might be liable to not look after the property in the future. This will affect the lenders’ security.
However, there would have to be serious credit problems to make a lender decline your equity release application.
Many lenders accent previously missed payments, defaults and County Court Judgements (CCJ) on their credit files. This is unless they are very large. Even then, many lenders accept the application as long as the person applying has been truthful and have an explanation behind the application of the CCJ. Undischarged bankruptcy, however, is not likely to result in a successful application.
Once the valuations and title checks are successful, the solicitor representing you sets the completion date.
When your equity release application goes through, you will be able to receive money by having it directly paid into your nominated bank account.
If you intend on saving the telegraphic transfer fee, you can get the payment in cheque form. You can borrow money either as a lump sum or you can take ad hoc withdrawals from a cash reserve depending on the scheme.
An equity release plan is a good way to turn equity tied up in your estate into something that is tangible and can be used. However, like any large loan, it has risks. It is therefore highly advisable to speak to your solicitor before deciding on releasing equity from your home.
There are companies who provide complete equity release services. They offer guidance to clients from the beginning of the equity release application to the very end. Always ensure that you are 100% comfortable with the terms of the proposed plan because once completed, you will not have the right to withdraw.