One important factor for many people looking into equity release is how much equity will they be leaving their family? In other words, how much will the equity release debt (loan + interest) be, in comparison to your property value.

To answer this you need to know two things. Firstly, how many more years of life have you remaining and secondly,what will your property value be worth when you die?

Obviously, nobody can answer either of these two questions. However, our longevity indicator might give you some insight as to how likely you are to reach a given age, and thus an approximation of how many years of compound interest you might be facing?

Please remember the Longevity Indicator is just that, an indicator. It does not provide a prediction or guarantee to how long you might live.

Most UK adults still aspire to own their homes, but how many of us have actually given any thought as to what really constitutes home ownership? For the most of us it’s probably a simple question of whose name is on the deeds and that’s all there is to it.

Before we look more closely at this question, think about this:

Q: What do most people mean by ownership?

A: You own an asset or item, and therefore you can do what you want with it, when you want and how you want. Seems right and logical - doesn’t it?

So think about that the next time you want to change a window, or make major changes to your home, or very soon if you want to add brick-weave paving to your driveway! All of a sudden you maybe thinking – “whose home is this anyway?”

But now let’s look at home ownership in the context of Equity Release for which you will need to consider two things:

● Right of tenure ● Financial interest

Who legally owns a property?

In the UK, property ownership has two components – Legal Title and Beneficial Interest.

In most domestic homes, the person who is the Legal Owner of the property will also be the Beneficial Owner.

The Legal Owner of a property is the person who is named as the registered owner with the Land Registry and is who the Legal Title will be vested in.

Legal Title on its own provides the title holder with no financial benefit.

Beneficial Title on the other hand, confers all the financial benefits/interest relating to owning a property.

The Legal Owner will handle any matters affecting the property e.g. dealing with solicitors, estate agents etc associated with property transactions. However the benefits of any sale belong to the person(s) noted as Beneficial Owner.

So far so good? But it surprises many householders to learn that having legal title gives you no financial interest in your own home.

So now let’s take a look at the difference Legal Title and Beneficial Interest takes with Lifetime Mortgages and Home Reversion Plans.

Lifetime Mortgages

A lifetime mortgage is not much different than a traditional residential mortgage other than you have no monthly repayments to make, but with both types of mortgages the Beneficial Interest and Legal Title remain with you.

No surprises there then. You own the property and any and all increase in the value of your home rests with you subject only to the terms and conditions of the mortgage contract.

Home Reversion plan

So why is the Legal Title and Beneficial Interest split when setting up a home reversion plan?

Because someone has to be responsible for the legal processes relating to the property. Where there are two or more Beneficial Owners of a property (as there would be with a partial reversion), it is more efficient to have one party deal with these transactions.

Why does the reversionary company assume legal title? Because in the event of the client dying, or moving into care, the family will not be burdened with the responsibility of dealing with the property sale, at an already difficult time. As Legal Title holder the reversionary company will undertake that responsibility.

It also means that Grant of Probate doesn’t need to be applied for before the property can be sold, which can make the whole process far simpler and quicker.

How are the interests of the Beneficial Owner(s) protected?

The owner of the Beneficial Interest is protected in two ways:-

i. A Declaration of Trust is issued which determines who owns what proportion of the Beneficial Interest.

ii. A Lifetime Lease is granted at the commencement of the plan which protects the clients’ right to occupy the property and provides them with tenure for life.

The Declaration of Trust is held by the Trustees, so if the client dies or goes into care, they will deal with the sale of the property and distribute the benefits according to the beneficial ownership noted in the trust deed. The trustees are legally bound to distribute the benefits in accordance with the trust deed.

Not forgetting of course that a reversionary company will always want to get the best price he can for the property, so in the event of a partial reversion the client is reassured that their beneficiaries will also will receive the best possible price for their share of the property.

After reading this you wouldn’t be blamed for thinking that it’s an open and shut case in favour of Lifetime Mortgages. You retain both legal title and beneficial interest , so it’s got to better than a Home Reversion plan – right?

Possibly. As you will discover when you read thorough the remaining connecting pages it’s very rarely just about ownership, or just about the rate of interest, there are other factors you need to take into account. If you want to ensure what’s best for you try to keep an open mind, and don’t make a decision until you have taken everything into consideration. Now go on to the step no 3.

Lifetime Mortgages and Home Reversions – A solicitors view.

There are two main types of equity release available and I do not intend to explore the financial aspects as my article will be focused on the legal differences between them.

1. Lifetime Mortgages

A lifetime mortgage is an agreement with a lender to borrow a lump sum of money from them (which you are free to spend as you wish) which only has to be repaid on your death or upon permanently leaving your property (for example if you move into long term care). The loan that you take from the company is taken as a mortgage and is placed on your house deeds by way of security. You are charged interest on the loan but do not have to pay this interest until you have died or gone into long term care. The interest is usually fixed for life and compounded.

When you enter into a lifetime mortgage contract, assuming you choose a lender that has a SHIP approved scheme (or it’s equivalent) then you are legally guaranteed the right to live in the property for the rest of your life, provided of course, that you comply with the terms of the mortgage (eg: you must keep the property insured, in good repair etc.). If you fail to comply with these terms you could be evicted from your home. You are also given a legal guarantee that if negative equity should ever occur on your property you would not be required to pay it.

2. Reversion Schemes

This is a scheme whereby you sell either a percentage of your property or the entirety of it to a company who in return will require that your house deeds be transferred either into the joint names of yourselves and the reversionary company, or into the sole name of the reversionary company.

The reversionary company will always give you a lease back (a legal right to live in the property) which lasts for the rest of your life or until such time as you permanently vacate the property (for example if you go into a care home), and of course you will retain your beneficial interest in the property.

The lease that you enter into is a legal guarantee to allow you to remain in the property for the rest of your life (or until you go into care) subject of course to you complying with the terms and conditions contained in the lease which are very similar to those contained in the lifetime mortgage contract (you must keep the property insured and in good repair etc.).

As with lifetime mortgages if you do not comply with the terms you could be evicted from the property.

Provided that you take the advice of a specialist independent financial adviser who would research the whole of the market and only recommend reputable reversion companies, and provided that you take specialist legal advice as to the terms of the reversion documents to ensure you have security of occupation, you have the same degree of protection and security of residence in your home as you would under a lifetime mortgage.

What are the main differences?

1. With a lifetime mortgage you remain the registered owners of the property whereas with a reversion scheme at best you become joint owners with the lending company and generally the lending company, even if you are only borrowing a percentage of the property, will become the sole legal owners subject to promising to pay you or your estate your retained percentage (if any).

2. Both lifetime mortgages and reversionary products have a very similar set of terms and conditions that you must comply with. Under either scheme if you breach these terms and conditions your home is at risk from repossession.

3. As your financial adviser would point out to you, with a lifetime mortgage if you die shortly after taking out the mortgage, your estate repays the loan together with the interest accumulated to the date of repayment. With the reversion scheme if you die shortly after taking out the scheme you will have sold either the whole of your property or a percentage of it at a significant undervalue and your estate may have suffered disproportionately because of this. On the other hand, with a reversionary product the longer you live the more return you get from it. On the converse, the longer you live with a lifetime mortgage the greater the interest has compounded.

4. As regards your security of occupation under a lifetime mortgage product or home reversion plan, you should only proceed with products that operate within the Safe Home Income Plans (or their equivalent). You should take specialist independent financial advice before you proceed with your chosen plan. You must also ensure that your solicitor is a specialist in all forms of equity release and who can properly advise you on them.

Peter L Barton – solicitor - Partner
Trusts and Estate Department
Ashfords
p.barton@ashfords.co.uk
T +44 (0)1884 203037 F +44 (0)1884 203237
For more information on our services please visit www.ashfords.co.uk

First, a quick reminder of how Lifetime Mortgages and Home Reversion Plans work:

Life Time Mortgage

A lifetime mortgage is where a loan is secured against your property to provide you with a tax free cash lump sum or a regular income to spend as you wish, with no monthly repayments to meet. But unlike a conventional residential mortgage there is no set time span for the loan.

Interest is added to the lifetime mortgage loan throughout your lifetime, accruing usually at a fixed rate of interest. The loan plus interest is eventually paid back when the home is sold, usually when you move into long term care, or when you and your partner die.

Home Reversion

With a home reversion plan you sell part, or all, of your home to a reversion plan company in exchange for a tax-free cash lump sum, or income and a guaranteed lifetime lease with no monthly repayments to meet.


You stay in your home rent free for as long as you choose and are able to guarantee an inheritance to your beneficiaries. Both you and the reversion scheme company share in any increase in your property's value, providing you have not exchanged 100% of its value.

Now let's compare how a decrease and increases in property value might affect equity remaining using a Lifetime Mortgage and a Home Reversion Plan given the same scenario: Male aged 75 -property value at outset £200,000 - requiring £50,000. 

Which Solution is best for you?

Deciding on the choice of equity release product is never easy as the right decision is dependent on a number of factors which will include your needs and often, crucially, your attitude in areas such as:

● Your view on future house values
● Your attitude to debt
● Your view on your own health and life expectancy
● If you want to provide a legacy
● Your attitude to general issues

We would recommend that you discuss these in a clear and objective way with both your family and your advisers. If conflicting solutions emerge it is vital that you then prioritise your views and requirements in order that you and those advising you can help you arrive at the most appropriate solution. The table below will help you.

Please note: This is a general guide. There will be variations to the generic plans described, so please refer to your specialist adviser for more specific product information.

In order to illustrate this and to help you we have provided two case studies to highlight the main differences between the two product options. The case studies are virtually identical to demonstrate that it is often the individual needs and attitudes that can ultimately identify the best solution.

CASE STUDY 1

Gerald and Hannah, aged 72 and 70.

They feel they have enough income but do not have enough money to meet the cost of a much wanted new conservatory. They have discussed the idea of equity release within their family and now want to look at the options for releasing capital tied up in their home worth £250,000.

Their initial need is for £25,000 for the new conservatory and to clear a small mortgage still left on their home. They are very keen to avoid any sort of borrowing and feel that the recent increases in house prices are not sustainable, and are worried that house prices may fall in the short to medium term.

They both feel that they could live to a good age as they both have one parent still living. Although they wish to have a good retirement they feel strongly that they want to help their grandchildren get a foot on the housing ladder and so are very keen to leave something to each grandchild.

CASE STUDY 2

Ralph and Patricia, are also aged 72 and 70 respectively.

They are also looking to release equity from their home worth £250,000. They have discussed equity release with their only son James, who is not expecting, or wanting an inheritance from his parents and would prefer his parents to live comfortably in retirement without money worries.

They want £25,000 to replace their car, install a new central heating system, and take a holiday.

They feel they would be fortunate if they lived another 5 to 10 years based on fact that both Ralph and Patricia suffer from health problems. Their attitude to house price inflation is very positive and when asked to give a figure, they expect house price growth to continue over their lifetime.

PRODUCT CHOICE

N.B: The above table and case study scenarios are a demonstration of what processes you might take in discussing and evaluating your equity release options. We would suggest that you do not finalise your decision making until you have also discussed your needs and thinking with a financial adviser who specialises in equity release, because with their experience he/she might be able to indicate other factors and issues that may not always be apparent or self evident.

1 The long term growth of the accumulated mortgage plus interest may result in the complete disposal of any equity in the property
2 A Home Reversion over a short term is not normally good value unless the plan is specifically structured to protect against early death.

So now let’s step back and have a look at what has been learned, and how it might help you reach a decision that you’re comfortable with, and also meets your needs and aspirations.

The first conclusion you reach, could be that home ownership is not quite as black and white as you’ve always imagined. You might now think that given the safeguards and guarantees inherent in most regulated equity release products, a lifetime mortgage or home reversion might now be a possibility for you. If so that’s good, because now you have more choice.

Having taken a look at our Longevity Indicator you might now be thinking “maybe, just maybe, I might be living longer than I thought”. If that is the case, you will need to take a much closer look at how compound interest might affect your future plans for things like leaving a legacy. This might include you wanting to ask for more detail on "guaranteed equity" options as well as home reversion plans.

Perhaps, step 5 – Other Considerations – has now caused you to consider other factors that have not occurred to you previously, but could be crucial to reaching a decision that not only meets your needs but you are also comfortable with in the longer term.

If all our six steps do, is to cause you to stop, re-think your overall situation and ask a few more questions of yourself and your advisers, before you make your final decision we would have done a good job for you. On the other hand, if it merely helps you to confirm that your original thinking was sound and on track, then once again we are pleased to have helped.

Don’t forget, one of the aims of Moneyfrommyhouse is to help you think about equity release in a more “lateral” way, and to look at it from different perspectives. Unlike some sites and advisers we not only encourage you to ask questions but we show you how to ask the right questions – now there’s a first for you!

All those involved at Moneyfrommyhouse, providers, solicitors and advisers are here to help you reach a safe and sensible decision about releasing cash from your home. We know that if we look after you and give you ALL the information you require you will be only too happy to sing our praises to others!