HOME FINANCE PRODUCTS Flashcards
2 Types of Equity Release:
Lifetime Mortgages & Home Reversion Plans
Lifetime Mortgages
With a lifetime mortgage, you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care. You can still continue to live there. You can borrow a lumpsum or go for a draw down facility or both. Most offer a no negative equity guarantee in most cases, i.e a lender guarantees you won’t have to pay back more that the value of the home even if the debt becomes larger over time.
Home Reversion Plans
Yousell all or part of your property at less than its market value in returnfor a tax-free lump sum, a regular income, or both – but you stay on in your home as a tenant, paying no rent. Home reversion plans are one of the two main types of equity release.
Sale and rent back agreement
Asale and rent backscheme run by a private firm allows you to sell your home to that firm and then rent it back from them as a tenant. You would normally sell your home to the firm at a reduced price.
Buy to Let
A buy-to-let mortgage is a long term investment. It aims to generate rental income and a capital gain on the sale of the property. It is regulated by the FCA if it is a consumer buy to let. Business Buy to let is not.
Consumer buy -to - let
“Accidental landlords” in need of protection by the regulator. Eg - Borrower travelling overseas who need to let out their property to cover their mortgage, letting out an inherited property, or borrowers moving elsewhere who let the property out because they don’t want to sell it.
Business buy -to - let
Not regulated. As the borrower is entering into a contract as a professional landlord they are deemed to be engaging in an enterprise. No FCA protection.
