While the overall divorce rate in the UK has fallen over the last 20 years, divorces among the over 60s are unfortunately increasing, according to the Office for National Statistics (ONS).
If you are in the early stages of a divorce and you’re aged 55 or over, you may be wondering what will happen with your family home. Will you have to sell it? Can you afford the mortgage repayments on your own? Can you afford to buy another house on your own? You’ll likely have lots of questions and concerns but rest assured there are options to consider.
There are several ways to split a family home during divorce, but not everyone has the same options available to them. In this article we’ll look specifically at how equity release can be used to divide the marital home during divorce or dissolution of a civil partnership in later life.
How equity release can help
Over 55s can consider releasing equity from their homes in order to help them split their assets. Lifetime mortgages, the most popular form of equity release, allow homeowners to take out a loan against the property which is repaid through the sale of the home when they die or enter long term care.
Equity release could offer a suitable solution for older homeowners going through a divorce who:
- Do not have the funds to buy out their partner
- Do not have the funds to purchase a new home on their own
- Do not qualify for a new residential mortgage due to their age and/or level of income
How to split the family home during divorce using equity release
There are two main ways that releasing equity can help to divide the marital home during divorce and ensure that both parties receive their share of the property.
Buying Out a Partner Using Equity Release:
In some cases, a divorcing couple might be happy for one person to continue living in their home and for the other person to move out. In this scenario, equity release can allow the person who continues to live in the home to take out a lifetime mortgage secured against the value of the property. They can use these funds to buy out their partner and become the sole owner of the property.
Purchase a New Home After Divorce Using Equity Release:
In other cases, a couple who are getting a divorce may wish to sell the property and both purchase a new home each. However, sometimes they cannot afford to purchase a new home on their own, or they might not qualify for a residential mortgage due to their age. Equity release can help solve this problem.
To bridge the shortfall between the proceeds from selling their marital home and the purchase price of their new home, the divorcees can take out an equity release plan on their new property purchase. This option allows divorcees to maintain their status as homeowners following divorce.
Key factors to consider
- To release equity from your home, you need to speak to a qualified adviser. Taking out financial products such as equity release is a big decision that could have meaningful repercussions, such as what kind of inheritance you leave behind.
- Equity release payments could impact your tax obligations and your entitlement to certain benefits. Your adviser will look at your individual circumstances to make sure that equity release is the right solution for you. They’ll also talk you through all your options outside of equity release products, such as downsizing, or remortgaging to a standard mortgage or a retirement interest-only mortgage.
- When releasing equity from your home you must seek both legal and financial advice and will therefore need to pay legal and advice fees.
- Equity release is a loan secured against the value of your home and so you will need to repay the capital plus interest. This is typically repaid when you go into long term care or pass away.
- You may find it helpful to discuss your plans with a friend or family member and remember they can accompany you to appointments.
If you are considering equity release to help facilitate a divorce settlement, you can rely on SN Financial to make what can be an emotional and stressful process as seamless and hassle-free as possible. Please do not hesitate to give us a call.