Upon the death of an owner, the equity release provider needs to be notified of their passing. When the last borrower dies, the equity release plan comes to an end and the property will need to be vacated. For lifetime mortgages, the equity release lender will then need to be repaid both the capital and interest owed.
In this guide, you will learn:
Throughout this guide, we will be focussing on the most popular type of equity release, the lifetime mortgage.
For Home Reversion plans, the lender will own part or all of the home. The property will still need to be vacated in the same way. However, if the property is no longer owned by the plan holder(s), there will be no capital or interest to repay. Instead, the lender will own the property and will sell it on to recoup their costs.
For Shared Appreciation Mortgages, the amount owed to the lender will depend on:
- The property value when the plan was taken,
- the amount initially borrowed, and,
- the property value it is sold.
Following the death of the last borrower, the equity release plan will be due for repayment. The settlement figure is made up of the funds initially borrowed and the interest accrued during the life of the mortgage.
If you have a joint equity release plan, it will only be due for repayment on the death of the second borrower.
The amount owed to the lender is usually paid back from the sale proceeds of the property. Therefore the lender affords reasonable time for your estate to repay the amount owed.
Specifically, most lenders allow up to 12 months after the death to repay the sum owed, but some may allow up to 3 years. This will vary for each lender, and your adviser will be able to detail the timescales for any plan that they recommend.
Following the death of the plan holder(s), the lender will not charge any Early Repayment Charges (ERC's) even if the plan end is within an ERC period.
Important: Interest will continue to accrue on the equity release loan until the plan is settled in full.
The Executor of your estate will have responsibility for repaying the equity release to the lender from your estates worth. This is usually paid from the sale of your home. Any remaining proceeds will then be distributed in line with your will.
The Executor of your estate or Next of Kin will be required to inform the lender of your death. To do this, they will usually require your equity release plan number, so it is helpful to make them aware of these details.
The lender will then send a letter to your Executor requesting that they keep them up to date on how the loan will be paid, and the progress on any sale of the property.
Once the sum is repaid to the lender, the land registry will be updated to reflect that the lender no longer has any charge on the property.
For lifetime mortgages which meet Equity Release Council standards, your estate will never owe more than your properties worth.
Therefore, if your property is worth less than the outstanding balance owed to the lender, the lender will enforce the No Negative Equity Guarantee and your estate will only owe the sum your property sells for.
The lender will most likely have an insurance plan in place to cover this eventuality, so they are not left short.
In this situation, there won't be anything left from your property sale for your beneficiaries to inherit.
If leaving behind an inheritance to your children is a priority, there are Equity Release plans which allow for additional amounts of the equity to be protected.
As previously mentioned, following death, your equity release plan is generally repaid from the sale proceeds of your property. This is carried out by the Executor of your estate.
However, it is not a necessity that the property is sold. The equity release may also be repaid from any other financial means.
This could include cash and the sale proceeds of other assets within your estate.
If your beneficiaries wish to keep your property, the Executor may choose to repay the sum owed from other parts of your estate.
Your beneficiaries will then be able to inherit the property without incurring Stamp Duty Land Tax (SDLT).
If your estate cannot repay the sums owed without extra funds being needed, your beneficiaries may decide to pay money into the estate.
Alternatively, your beneficiaries may elect to purchase the property directly from the estate. In this case, they will be able to use any financial means they wish, including a residential, or buy-to-let mortgage.
If your beneficiaries pay money into the estate or pay money to other beneficiaries, SDLT may be due.
If you took your equity release out with another co-owner, it works on a 'second death' basis. Meaning that the plan does not come to an end until the second owner passes away.
You and your partner retain the right to live in the property until the last one of you dies or moves into long-term care.
Only then does the plan come to an end, and the Equity Release provider is due to be repaid.
For plans held in joint names, when one partner dies, it would typically be the surviving plan holder who contacts the lender to let them know. However, you are free to ask another person to do this at this difficult time.
The lender will write to the remaining plan holder requesting that the original death certificate is sent to them. This will typically be returned by recorded delivery. The lender will then note the death and no further action is needed.
The surviving plan holder may continue to live in their home, and the equity release plan will carry on until they pass, or move into long-term care.
Some plans allow for the optional repayment upon the death of the first co-owner. We refer to this as the Significant Life Event exemption. In such instances, the lender will usually afford you the option to repay within three years of the event without any additional cost.
The Significant Life Event will be written into the plan at the outset. So it is essential to understand if this feature is included with any equity release that you are recommended.
If you move into sheltered accommodation or long term care, it is considered that you will not be returning to the property. At this time, your plan will come to an end, and the lender will need to be repaid for the sums of money owed.
If you co-own your property and one of you needs to move into long-term care, your plan will continue until the second borrower either dies or moves into long-term care.
If the property is sold to repay the lender, any surplus may be used to fund any ongoing care costs. This could be the case for private care, but also state-funded care.
If you enter a care home and need state-funded care, your local council will conduct a means test to see how much they will be able to help. If your assets (including your properties worth, less any finance secured on it) are more than £23,250, you will likely have to pay for all costs. If you have less than this, the state will cover some or all of the cost. This will typically result in your property being sold irrespective of any equity release plan.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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