The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.
Equity release plans unlock the value of your home and turn it into tax-free cash that is secured against your home. This can be used during your retirement, enabling you to make the most of your golden years. When an equity release policy is taken out, the provider will most likely send a welcome pack at the start. This pack will include a reference number, which you will need to have to hand for when speaking to the equity release provider.
When a loved one passes away, there are often a lot of things to consider, from getting copies of the death certificate to contacting bank and insurance providers and executing the will. This also coincides with the grieving period, making the whole process often more draining.
This guide will specifically walk you through the process of what happens to an equity release plan when the last borrower passes away or moves into long-term care.
Have a question about an existing LV= equity release product?
We can help. We know that this can be a tough time, so if you would find it easier to speak to someone about ending the equity release plan after your loved one has passed away or moved into long-term care, please feel free to get in touch with us.
What information should I have to hand about equity release?
When someone takes out an equity release policy, the equity release provider will most likely send a welcome pack at the start. The provider will also send an annual statement every year. These documents will include a reference number, which you will need to have to hand when speaking to the equity release provider.
The person who took out the equity release plan should store this reference number safely and inform any beneficiaries where the reference number is.
You might also need the name of the policy holder and the property address, which the lifetime mortgage was secured on.
To be able to discuss the lifetime mortgage details with you, the provider might also need a copy of the Will which appoints you as executor or beneficiary.
How does equity release work when someone dies?
If you are the beneficiary of a will or assigned as the executor, then it will fall to you to contact the equity release provider. In the first instance, you will need to send the death certificate and the probate document so they can speak to the executors of the will.
The equity release provider will then ask about the plans to repay the loan. The most common repayment term is within 12 months of the last borrower dying or moving to long-term care. Until the loan is repaid, interest will continue to accrue.
To repay the loan, the executors will most commonly sell the house. This is often the simplest way to repay the loan for many without dipping into personal savings. It’s in the lender’s best interests to keep on top of the house sale, so they may also request the solicitor’s or estate agents’ information to receive progress updates. As the sale is a probate sale, the estate agent may suggest selling the house at a slightly lower price to ensure a quick sale or will advertise it more extensively in order to meet the turnaround period.
What happens if the value of the house falls below the total owed?
If the value of the house falls below the total repayment sum, then the equity release provider will be in contact to discuss the options. If the equity release plan is from an Equity Release Council approved lender, then it will have a no-negative equity guarantee. This means that you won’t have to pay any more than the value of the home.
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What is no-negative equity?
A no-negative equity guarantee protects the beneficiaries in the event that the value of the home is less than the total owed. This means that the estate will not owe more than the value of the home. No-negative equity guarantees only apply to products from Equity Release Council approved lenders.
If this is the case for you as a beneficiary, then the equity release provider will apply the no-negative equity guarantee. There may be some conditions such as ensuring the property is sold for market value. Under the terms of the lifetime mortgage, there may also be circumstances when the no-negative equity guarantee does not apply in full. If you think the property may be worth less than the total owed, then it is important to discuss this early with the equity release provider.
How else can you repay an equity release loan?
While most people will sell the home to repay the equity release loan, some may choose other methods to repay the loan. Family or friends may want to keep the house, and so might use savings or other assets that could pay off the loan.
If someone wants to keep the house as an investment but doesn’t have the upfront funds, then a buy-to-let mortgage is sometimes used in these scenarios. Equity release providers may not always accept this as a form of repayment, but most are happy to discuss options of how you could repay the loan within the 12-month timeframe.
If you are over 55, then you could look at taking out another lifetime mortgage yourself to cover the amount due. For both these options, it will depend on how much is owed compared to the value of the home, as the loan-to-value might be too large.
In what timeframe do you need to pay equity release back?
Equity release most commonly needs to be paid back within 12 months. However, some equity release providers may be flexible on this, or some may offer extensions if they can see that you are trying to sell the home. It’s always worth checking with your equity release provider what the repayment term is.
It is important to note that after the repayment term passes, the equity release provider can choose to take over the sale and repossess the property.
What happens if my partner dies and we have a joint equity release plan?
If your partner passes away and you are now the sole owner, the equity release plan will continue until you either pass away or move into long-term care. The plan will not conclude until that point.
As the surviving plan holder, it’s up to you, a family member, or a friend to contact the equity release provider to let them know of the change of circumstances. The equity release provider will then request the original death certificate and return it. Unless the lender requests further action, then no further information is needed.
There are some circumstances where there is optional repayment at the death of the first owner. This is referred to as “Significant Life Event exemption,” and will be made clear if this is the case when you first take out any equity release product.
What happens if I move into full-time care?
If you move into long term care, whether that’s with family members or a specific care home, then the equity release lender will normally contact you to find out if you intend to return to your home. If you do not intend to return, then this will trigger full repayment of your lifetime mortgage. As above, full repayment normally needs to be made within 12 months of permanently entering long term care.
If you are joint borrowers, then the total debt will be repayable when the last person enters care or passes away.
If you sell your home to repay the loan, then any surplus may be used to fund your care costs, whether private or state. If you end up using state-funded care, then your local council will means test you to see how much they can help you. If you have more than a certain amount, then they will not be able to help you. In this process, the council will look at the value of your property, minus any outstanding finance against it, so your home will be wrapped into the means test regardless.
Are you interested in equity release?
Equity release plans are a big financial decision. That’s why, at LV= we offer FCA-regulated financial advice on equity release. Equity release may or may not be right for you, but we’ll help you understand what the best options are based on your pension and retirement goals.
Or, why not try our free equity release calculator? You could get an idea of how equity release could work for you.