Equity Release for Couples

Helping demystify equity release

One of the many fears that can come to the fore when people discuss equity release, is the question, ‘what happens if I die before my wife?’

There’s a worry that having a lifetime mortgage or home reversion plan on your house means that your spouse or partner can find themselves out on the street following your death, with the house sold remorselessly under their feet. Thankfully, this worry is little more than one of the many myths surrounding equity release, but a failure to properly set up your equity release can result in some unpleasantries so it’s important to get it right.

The homeowners – who can get equity release in the first place?

If your house is jointly owned, then it is extremely unlikely that one of the partners can take on a mortgage, including equity release, without the permission of the other. This means that, realistically, any decision to get equity release on your home must be done together.

A single partner trying to take control of the equity could only occur if the original ownership contract for the house had a clause to allow such action, and no standard agreement would do so. Simply put, only the person or people on the house deeds can apply for equity release.

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Joint equity release

Couples seeking equity release should do so with a joint equity release application, whether that is a joint lifetime mortgage or a joint home reversion plan. It is important enough that most providers will insist on a joint plan if there is a couple living in the property, whether married, in a civil partnership or simply living together – even if the house itself is not joint owned.

A joint equity release arrangement works that the house is sold only when the last surviving partner dies. Should one of you pass away before the other, the agreement passes completely to the surviving party and acts as a single equity release contract from that point on. In this way, your partner is protected from any fear of being evicted from their home upon your death.

What happens without a joint equity release arrangement?
In the case where the equity release is in only one name, then the second partner is vulnerable. Under the terms of the contract, the lifetime mortgage must be paid, or the home reversion plan realised. This is likely to result in the loss of the home for the survivor.

Contract timing – how long do they have before becoming homeless? Most equity release arrangements must be completed in three- to six-months of your death. This is typically enough time for the appointed agents to complete a sale. Anyone still living in the house would have this time and no more to find alternative living arrangements.

My partner is not part of my equity release – what can I do?

There are a few reasons why a spouse or partner might not be included in the lifetime mortgage or home reversion plan. Rarely it is due to an oversight, where the original agreement was processed and completed without the issue of a second party coming up; more typically it is because the person moved in after the original contract was written.

Equity release can be taken out from the age of 55, and plenty of people start new relationships after that time, leading to many equity release plans that are in a single name despite the house being home to another.

Some equity release providers can renegotiate the contract in this instance, adding the second name onto the account. If this is the case, the matter can be resolved relatively easily, though additional costs may be incurred due to administration fees.

couple-checking-equity-release-documents

What happens if there is no provision for a renegotiation?

Many providers, however, have no provision for a renegotiation in this way, which leaves a few limited options:

Ending the equity release contract early. This would involve paying off the balance of any lifetime mortgage held on the property or buying out the home reversion plan as the contract details. In this instance, there would be additional early repayment charges and unless there is a substantial amount of spare savings or cash, raising the capital to do so may involve selling the house anyway.

Discussing with the provider or potential replacement equity lender the option of taking out a replacement lifetime mortgage to pay off the first. Again, this would result in early repayment charges and would be subject to the agreement of the provider, but some lenders are willing to negotiate in this way.

Looking to a life insurance plan to cover the expected sum of the payment due. The premiums on a life insurance policy of the required size and term length could be considerable, but it remains a viable option for some. Issues such as age and health, both considered a helpful factor in accessing higher levels of equity for release, could prove to be obstacles in procuring life insurance.

Planning for an eventual move. Sad though it is, the realistic option for most is simply to accept that it is a situation that might happen and plan accordingly. Putting money aside for future living expenses and speaking with family to ensure the financial security of your partner is taken care of when you pass are both prudent strategies.

Leaving the remainder of your house – your partner’s inheritance

If you have a legal partner (married or civil partnership), then unless you have specified otherwise in your will, they will be the recipient of the remainder of your estate upon your death. This is true even if you died intestate (without writing a will).

Your equity release lifetime mortgage is unlikely to require 100% of the value of your house upon your passing, and whatever is left from a sale will be passed to your partner if they are not part of the equity arrangement. While this is not as great a level of security as a full inclusion on the equity release contract, it does provide some financial help.

How does equity release affect other resident family members and house sharers?

Under equity release, there are no rules preventing the people you choose to live with you in your house, but none of them would be protected in the case of your death. Like a partner not included in the contract, other family members and those who share your home would be expected to find alternative living arrangements when you pass away.

If you have an equity release arrangement, it is important to discuss this eventuality with anyone in your house.

Joint equity release advice from The Mortgage Hut

As specialists in finding the finest mortgages and equity release plans in the market today, we at The Mortgage Hut are perfectly placed to offer free expert advice to you.

Whether you are thinking about equity release and want to make sure that both you and your partner are safe, or if you need help regarding an existing contract, we can answer your questions and find the best solution for your needs.

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