If you’re 55+, equity release can help you leverage your home to get the funds you need without selling or moving.
You can release money for various purposes, from one-off expenses and lifestyle purchases to boosting your retirement income and covering homecare costs.
The latest market report shows that between July and September 2024, homeowners over 55 released £615 million of property wealth from their homes. Almost all consumers prefer to use lifetime mortgages for equity release, and it makes up 99% of the market.
Under the rules, you don’t have to make any repayments within your lifetime unless you choose to. But what happens to the loan after you die?
What should your beneficiaries or executors take care of? This guide explores how equity release works when you die and the process of repaying it.
What Happens to Your Equity Release When You Die?
When you die, the outstanding equity release debt and accrued interest becomes due for repayment either by selling the property or through other funds from your estate or beneficiaries.
Your next of kin or solicitor must inform the equity release provider of your death as soon as possible.
When you first take out an equity release, the provider will give you a welcome package with contact details and a plan reference number.
The number is important since your beneficiaries or executors must quote it when dealing with the lender. Ensure you keep it somewhere safe and known to your executor or beneficiary.
Who Repays the Equity Release?
Your estate’s executor will be responsible for repaying your equity release, and they must apply for a probate grant to gain legal authority over your estate when you die.
Once the lender is informed, they’ll request the death certificate and probate document so they can contact the executor directly.
The lender will contact the executor requesting information on how they plan to repay the loan. In most cases, it involves selling the property, so the lender may ask for sale particulars and monitor the progress of the sale.
Once the sale goes through, the executor will use the proceeds to repay the equity release debt plus the estate agent and solicitor fees. Any balance will go to the beneficiaries as instructed in your will.
How Does Equity Release Work If You Have a Surviving Partner?
If you’re in a joint equity release plan, it must include both of your names to ensure your partner can continue living on the property after you die.
The lender will ask for the original death certificate. They’ll return it after noting the death in their system, and no further action is necessary.
Your surviving partner will continue living in the home, and the equity release will end once they die or move into long-term care.
They can also move if they want to, provided the lender agrees that the new property is enough security for the existing equity release.
Remember, if the surviving partner isn’t named in the equity release plan, they may be forced to move out so the property can be sold to repay the debt.
Related reading:
- Reasons for remortgaging.
- Remortgaging to release equity.
- Remortgaging to buy another property.
- Remortgaging with bad credit.
- Remortgaging for home improvements.
- I own my house outright can I remortgage?
- Capital raising mortgages.
How Quickly Must the Equity Release Be Repaid?
Most lenders allow up to 12 months after you or the last plan holder dies for the executor to repay the equity release debt.
This offers enough time to arrange the property sale for a reasonable market price and get the proceeds to settle the loan.
However, timeframes can vary depending on the lender, so it’s advisable to check the terms of your contract. The loan will remain outstanding and continue to accrue interest until it’s cleared in full.
Must Your Home Be Sold to Repay the Equity Release?
Whether or not your house must be sold will depend on the equity release product and the circumstances of your estate or beneficiaries.
With a lifetime mortgage, the executor doesn’t have to sell the home to repay the equity release. They’re only interested in the repayment, not the property, so funds from other sources can be sufficient.
For example, the executor can use funds or assets from other parts of your estate to clear the debt without selling the property.
Your beneficiaries can also repay the loan with their money or use other financial methods like residential or buy-to-let mortgages to repay and keep the home.
With a home reversion plan, the home must be sold since the lender already owns part or all of it.
Your beneficiaries may try buying it back, but it will likely cost more than the original amount provided by the lender. This is something you must consider when choosing an equity release plan.
Will A Solicitor Get Involved When You Die?
The solicitor can get involved depending on who died and whether the equity release was held in single or joint names.
Solicitors rarely get involved if one person dies in a joint equity release plan. From a legal perspective, the plan will not have changed since the surviving partner will continue living in the house, and the equity release will continue until they die or move into long-term care.
Solicitors become involved more regularly upon the death of a sole borrower or when the surviving partner of a joint plan dies.
In such cases, the beneficiary should contact a solicitor specialising in equity release for guidance and help in various necessary steps after you dies.
These include sending the equity release provider the death certificate, notifying the home insurance provider, and applying for the grant of probate for permission to sell the property. The application can take 3 to 4 months and shouldn’t exceed 6 months.
Should Your Beneficiaries Consult a Financial Adviser When You Die?
Yes. A financial adviser can offer invaluable help to your beneficiaries after your death, especially in joint plans.
It will be an emotional and difficult time for the surviving partner, and the adviser will ensure they ask the equity release provider the right questions.
Consulting an adviser will help beneficiaries and the surviving partner reassess the equity release to determine if it’s being managed appropriately and how they can secure their future after your death.
Key benefits of getting financial advice at this stage include:
- Helping move the beneficiary or surviving partner to an equity release plan with lower rates, better features, and more flexibility to secure their needs now and in the future. Interest rates can fall anytime, and new plans on the market can offer better flexibility and choice. Moving them to a new plan can make more financial sense if you entered the equity release agreement many years ago.
- Performing benefit checks to determine if they can get further help. This can be possible if the household income has fallen after your death, and they can claim benefits like additional pension credit or reductions in Council Tax.
- Help with downsizing and moving. The beneficiary or surviving partner may want to downsize and move to a smaller property for various reasons. The adviser can help them assess the implications, like whether early repayment charges will apply or if the new property is enough security for the lender.
- Help to proceed with a drawdown facility. If you had a drawdown facility and didn’t withdraw all the released funds in one lump sum, some money may still be available through the original plan. The adviser can help determine whether to use the extra funds to secure the surviving partner’s future or cover other needs like funeral costs.
How Much Will Be Repaid After You Die?
The amount that must be repaid after you die will depend on:
- The loan amount you got from the lender
- The interest rate you agreed to
- The number of years that have passed after entering the equity release plan
Equity release products that meet Equity Release Council (ERC) standards must have a no negative equity guarantee.
It protects your surviving partner or beneficiaries by ensuring they don’t owe more than the home’s value, no matter what happens in the property market.
For example, if the money raised is insufficient to clear the loan when the executor sells the property, your surviving partner or beneficiary will not be responsible for paying any excess debt.
The lender will absorb the shortfall, and most have insurance plans set up to help cover such eventualities.
How Can You Protect Some Equity for Inheritance When You Die?
Equity release can affect how much of your home’s value is left to leave to your beneficiaries. In some cases, it can consume the entire property value, meaning there’ll be nothing left for beneficiaries to inherit.
Fortunately, you can protect some of the value of your home when entering an equity release agreement to ensure a portion of it is left to your beneficiary.
You can achieve this through a protected equity guarantee, also called an inheritance protection guarantee.
It allows you to ‘ringfence’ or protect a percentage of the property’s equity from being used to repay the equity release debt. Remember, the larger the percentage you protect, the less equity you can release from your home.
Final Thoughts
Understanding how equity release works when you die is crucial to ensure you and your beneficiaries are well-prepared.
Consulting an impartial and qualified equity release adviser who is a member of the ERC can ensure you get the right information tailored to your situation so you can make an informed decision.
Sources and References
- https://www.equityreleasecouncil.com/news/council-publishes-q3-2024-lending-figures/?mc_cid=a389a51416
