Equity Release for high value properties

Many clients come to us with high-value properties, looking to release funds for various reasons. Most notably for inheritance tax planning, as the cost can be tremendous.

You can get equity release on high-value property. Lenders class any property over £1,000,000 as high value, but most product changes occur if the property is valued at over £2,000,000. Some plans have maximum property values, but some only become available for high-value properties and can offer lower interest rates.

If you have a high-value property, there is some essential information you need to know before applying.

In this guide, I will focus on the most common type of equity release, lifetime mortgages.

What is the maximum property value you can have for equity release plans?

There is no maximum property value for equity release as there are lenders who specialise in higher-value homes. However, some plans have a maximum loan amount, and some will have a maximum property value.

On the other hand, some products are only available to properties valued at over £2,000,000.

Some plans may also state they have maximum property values, but often the lender will consider higher property values on a case-by-case basis.

They will assess the property as a whole, most notably its saleability in the future.

How is equity release calculated on high-value properties?

Calculating the amount and interest rate of equity release on a high-value property is similar to it being calculated on a standard-value property. However, there are some differences to be aware of.

Loan to Value (LTV)

The amount you can release from an equity release is a percentage of your property value. We refer to this as Loan to Value (LTV). For example, if you borrow £1,000,000 against a £4,000,000 house, the LTV would be 25% (£1,000,000 / £4,000,000 = 0.25).

Typically, as you get older, you can release more funds. The increase is approximately 1% each year until you reach age 85+.

The maximum LTV achievable on a high-value property could be lower than that of a lower-value house. Let's take a look at how they differ.

A single applicant aged 70.

	Maximum Loan to Value (LTV)	Cashback (Non-interest-bearing)
Property Valued under £2,000,000	43.80%	0.00%
Property Valued over £2,000,000	43.80%	0.00%

As you can see, the percentage you can borrow can be different depending on the value of your home.

Does your property have lots of land? (5+ acres)

High-value properties can have vast areas of land, which can impact how equity release is calculated.

Some lenders will only consider the value of land up to a certain amount, often five acres. However, the lender's charge will be against the title deed, including all of the land, even if it was not valued.

If we ever see this scenario, we discuss the potential option to split some land away from the title.

This will involve solicitors to complete the "title split", but it means you can keep the land available if you ever want to sell, build or change without prior consent from the lender.

Does your high-value property have outbuildings?

Many high-value properties have outbuildings separate from the main dwelling. Examples of outbuildings include:

• Annexes
• Stables
• Barns
• Workshops

When calculating your equity release, some lenders include every outbuilding in the valuation, some include one, and some only include the main dwelling. Again, like with the land, the lender will include it in their charge, even when they do not value it.

As you can see, it isn't the most straightforward job for the advisor - knowing which products will value your property as high as possible while achieving the best interest rate and suitable features for future planning can be difficult.

For example, a lender that only values 5 acres of land, and one outbuilding, could offer a better interest rate based on a lower valuation figure than a lender who values all outbuildings and 7 acres of land.

Furthermore, such properties may have to be referred to the equity release lender for pre-underwriting.

Therefore, your advisor could take a week to find a suitable plan.

Getting a bespoke equity release deal on a high-value property

With high-value properties come larger loans, and lenders will often give you access to bespoke deals for higher releases.

The bespoke deal could include the following:

• a lower interest rate,
• increased loan amount, or,
• added cash back.

Cashback is an amount added to the plan that you are not charged interest on (non-interest-bearing).

Surprisingly, not all advisors know that lenders offer bespoke deals, as you have to contact the lender directly instead of relying on other tools to find the best product.

Which is the best lender for equity release on high-value properties?

There is no best lender for high-value properties, as it depends on your financial position and goals. However, some lenders usually find themselves at the top when recommending equity release on high-value homes.

Let's look at the three I often see.

More2Life

More2Life offers a wide range of products, some only available for properties valued over £2,000,000. They have competitive interest rates but will typically not provide the largest loans available to you.

Legal & General

Legal & General offers deductions to their interest rates for loan amounts above £700,000. Legal & General often provide competitive interest rates and larger loan amounts than more2life.

Canada Life

Canada Life is often number one for the amount they can provide. They also offer some great plan features for future planning, including Downsizing Protection and the Significant Life Event Exemption - offering protections against Early Repayment Charges.

Downsizing Protection

There is two types of downsizing protection.

The one offered by most plans states: If, after several years, most commonly three or five, you decide to move home, you can repay the balance in full without incurring an Early Repayment Charge if the new property does not meet lending criteria.

However, the more comprehensive one offered by Canada Life waives the Early Repayment Charge if you sell your home after having the plan for five years.

Significant Life Event Exemption

The significant life event exemption is a feature that allows you to repay the balance in full, without incurring an Early Repayment Charge, within three years of the first borrower passing away or moving into long-term care.

No one knows how they will feel when their loved one passes away, but I know many people prefer to move home.

Other lenders

Although I have listed the three lenders above, many more could be suitable. It all depends on the amount of money you seek and your future financial goals. Plus, depending on your specific property, others may be more suitable, including Aviva.

Should I take equity release on my high-value home?

I can only say whether you should take equity release on your high-value property after speaking with you; however, it is always worth considering all options, including equity release.

People come to us with high-value properties for inheritance tax purposes, and allowing them to gift funds to their loved ones now.

What is inheritance tax (IHT)?

Inheritance Tax is a tax on the estate of someone who has passed away. Not everyone pays it, and the current threshold for an individual is £325,000. So if your estate is worth less than this, you would not pay any IHT.

The tax currently stands at 40% for any amount above the threshold. Equity release can help with the amount of inheritance tax payable, as it reduces the value of your estate - being a liability.

You can use the monies on anything you wish, but commonly, we see people gift the funds to their children as an early inheritance. Some even suggest that their children make the interest payments towards their plan, which the children are often happy to do.

Click here for more information on how equity release can help with inheritance tax.

Using equity release instead of investments

When speaking with clients, I often find that you can also have large investment funds if you live in a high-value property.

Sometimes, our clients prefer to use equity release rather than liquidise other assets, such as those held within well-performing investment funds. Their financial advisor may have even recommended this, allowing the investment fund to grow while using the money tied up in their home.

This allows the investment fund to grow while using the money tied up in their home.

You also have the flexibility to make repayments. Most equity release plans allow up to 10% overpayments per year without incurring additional costs. This can reduce the amount of interest accruing while the investment fund grows.

Passing funds held in investments to your beneficiaries may also be possible when you pass free of Inheritance Tax. It would be best to speak with your tax advisor regarding this, as it could save your estate thousands of pounds.

What are the risks in taking equity release on a high-value home?

The biggest risk in taking equity release on a high-value home is how your estate's value can be significantly reduced.

However, this is great for those who want to lower their inheritance tax liability.

Another risk worth mentioning is valuation fees.

With most products, there are no up-front valuation costs, but for higher-value properties, they become more common.

The amount charged is often on a sliding scale, meaning the more the property is worth, the higher the fee. This is often non-refundable, so the risk comes when you no longer wish to proceed, or the lender rejects your application.

However, if you are concerned, products are almost always available with no up-front costs.

All other risks are the same as taking any equity release plan.

These include:

• Having a first charge on your property means you need to keep to specific terms and conditions (this sounds scary, but it will be very similar to other mortgages, and the conditions will be fully explained to you)
• Having interest charged
• Reduced inheritance

If you are concerned about any risk involved with equity release, you should speak with a qualified equity release advisor.

Can you be rejected equity release on a high-value property?

You can be rejected for equity release on a high-value property, just the same as you can be for any property.

Lenders' underwriters will be more involved with high-value properties. Typically, any property over the value of £2,000,000 will be referred for upfront approval before a valuation is allowed to take place.

The lender may also have to approach their funder in specific cases.

The funder will assess if your property meets its lending criteria and the future saleability of the property. Often, high-value properties can take longer to sell as there is a reduced number of buyers able to afford such properties.

For a typical equity release, we estimate it to take eight to twelve weeks to complete. However, because of this extra step, the process will take at least one more week for higher-value homes.

While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor tax advice and should not be relied upon.

To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.