Enhanced Equity Release – What You Should Know

Are you curious to learn about enhanced equity release? You’ve come to the right place. Every month, more than 7,000 people use our website to get helpful advice on equity release. In this guide, we’ll explain:

• What enhanced equity release is.
• How to know if you fit the rules for this plan.
• The good and not-so-good points of enhanced lifetime mortgages.
• The steps to get a real quote.
• The companies that offer these plans.

We know that equity release can seem tricky. But don’t worry; we’re here to make things easier. Our guide is full of useful tips to help you understand the process better.

We’re experts in the field, so we understand the worries you might have about equity release. We also know that it can be hard to decide if this is the right choice for you, which is why we’re here to share our knowledge and make the journey less confusing for you.

Let’s start our journey to understanding enhanced equity release together.

What is enhanced equity release?

Enhanced equity release is when you use a special type of lifetime mortgage, known as an enhanced lifetime mortgage. These equity-release mortgages ensure that the lender takes into account your health to assess how much equity you can release and/or the interest rate you receive. 

In a nutshell, an enhanced lifetime mortgage lender will allow people with poorer health to access more equity or a lower interest rate. Enhanced equity release schemes may also be called impaired health equity release, health-based equity release, or ill health equity release.

What is a medically enhanced equity release plan?

A medically enhanced equity release plan is a plan that takes into account your medical history and overall health as part of the deal. You’ll need to complete a lifestyle questionnaire as part of the application process.

Enhanced lifetime mortgages in detail

An enhanced lifetime mortgage lender works from the logical principle that people with poorer health have a lesser life expectancy, and thus, they can provide a better deal to people who are expected to die sooner than others. They will analyse your daily lifestyle and medical records to make a judgement.

They will look at things like:

1. Your Body Mass Index (BMI)
2. How often you smoke and drink alcohol
3. High blood pressure
4. If you have diabetes
5. If you take ongoing prescription medication
6. Your medical records to identify instances of a heart attack, cancer or other serious conditions

These are some of the common health factors in lifetime mortgages, but it is not an exhaustive list. 

Do I qualify for an enhanced lifetime mortgage? 

If you tick any of the boxes on the lender’s health and lifestyle assessment to indicate poor health or a serious issue, you may qualify for an enhanced lifetime mortgage. However, qualifying for enhanced lifetime mortgages doesn’t stipulate how ‚Äòenhanced’ the mortgage deal will be. 

For example, having a terminal illness may qualify you for a more favourable deal compared to being a regular smoker. Some providers only offer better deals to those with serious health concerns. Drinking or smoking more than recommended will not improve your deal by much – or at all. Each case is assessed on its own merits to establish a degree of improvement in the lifetime mortgage. 

To find out how much money you could release with an impaired lifetime mortgage, lenders sometimes include a special equity release calculator on their website. From my experience, using an equity release calculator is a great way to get a rough idea of what you can expect. However, for an accurate quote, you will need to go to a lender.

Do you need a medical for equity release?

You do not need to complete a medical for a normal equity release plan, and you still don’t have to complete a medical for enhanced equity release. When you try to get a better deal with enhanced equity release, you only need to complete a health and lifestyle questionnaire and possibly provide copies of medical records to verify your answers. No additional medical is required. 

What are the advantages of enhanced lifetime mortgages?

The most notable advantage of using an enhanced lifetime mortgage is that doing so could allow you to increase the amount of money you could release from a lifetime mortgage. And it could lower the rate of interest applied to your loan. 

This can be especially beneficial if you have a serious health issue and need the money to make life more comfortable, such as modifying your home (approval may be needed!) or seeing or doing things on a lifelong bucket list. 

The other pros of advanced equity release are:

1. You do not need to complete a medical
2. You’re still protected by the negative equity guarantee
3. The money remains tax-free

What are the disadvantages of enhanced lifetime mortgages?

There are some disadvantages of these mortgages to be aware of, including:

1. Taking out a greater amount of equity could devalue your estate and reduce beneficiaries’ inheritance. 
2. They may take longer to set up if a doctor’s report or medical records are required.
3. Taking a greater lump sum could affect some means-tested benefits.
4. Early repayment charges are still very high on average

Enhanced Lifetime Mortgages and Inheritance

Enhanced equity release plans can have a significant impact on beneficiaries and inheritance tax planning. Not only will the beneficiaries’ inheritance likely be reduced as a consequence of the equity release, but there also may be inheritance tax implications, resulting in the value of the estate being reduced further.

As such, before committing to an enhanced equity release plan, it is vital to discuss your options with a financial advisor. In some cases, an advisor may be able to give guidance on some strategies that would minimize the negative impact on estate value.

Which companies offer enhanced lifetime mortgages?

Not every equity release company offers enhanced mortgages because they are more time-consuming and complex to process. However, there are still a handful of providers that do and it’s important to search all of the market to find the best option for your requirements. 

To get you started, two providers that offer these lifetime mortgages at the time of writing are Aviva and Just Retirement. 

What is a drawdown enhanced lifetime mortgage?

A drawdown enhanced lifetime mortgage works in the same way as an enhanced lifetime mortgage with one key difference. Instead of receiving a lump-sum payment from the mortgage provider, you receive the full loan amount in stages as you need it. This is formally known as a drawdown facility. These payments are still tax-free cash. 

What is the best type of equity release?

Enhanced lifetime mortgages are considered by many to be the best equity release option because they provide a better deal for people with poor health who are more likely to pass away sooner than others. If you have a low life expectancy due to a medical condition, using an enhanced lifetime mortgage over a regular lifetime mortgage or a home reversion scheme is probably the best idea. 

However, you should still seek professional advice that is independent of your preferred equity release provider and is authorised and regulated by the Financial Conduct Authority (FCA). 

Is equity release a bad idea?

It’s impossible to say whether equity release plans are a good or bad idea. Whether or not you should use one will depend on personal circumstances and objectives. For example, somebody with no children to leave their estate to could be less worried about using equity release compared to someone with children who they know are relying on inheritance in the future. 

Everyone should get equity release advice before making a decision. 

What are some alternatives to equity release for individuals with ill health?

If enhanced equity release isn’t appropriate for you, there are other solutions for health-related financial needs, such as:

1. Enhanced Annuities: Annuities are a type of financial product that offers a fixed income for a lump sum. Enhanced annuities are similar to enhanced equity release plans in the sense that they take the applicant’s health into account.
2. Critical Illness Insurance: This type of insurance provides you with a lump sum if you get diagnosed with a long-term illness or disability.
3. Local Authority Grants: Some local authorities in the UK may offer grants to help people modify their homes so that they can live more independently.
4. Disability Benefits: If you are disabled or experiencing a long-term illness, you may be entitled to disability benefits. Such benefits will provide extra financial support to help cover the cost of healthcare, housing, and other expenses.
5. Personal Loans: If your credit score is sufficient, you could consider taking out a personal loan. However, it is very important to shop around and that you feel confident you will be able to pay back the loan with interest.