Considering equity release? Here’s why LPAs are important
Posted on 12th August 2022
Market analysis by mortgage broker, Henry Dannell, shows that homeowners in the UK have already released up to £1.4billion of equity in their properties so far in 2022.
Also known as later life mortgages, over 12,500 of us have chosen to use some of the value of our property to reduce our bills, improve our quality of life, or help a family member. That’s an increase of more than 20% compared with the same period in 2021. The figure could reach 50,000 by the end of the year amounting to almost £5.6billion of equity.
To some extent, this change is due to choices made by high-net-worth individuals who have valuable properties. Three of the country’s most expensive property areas – the South East, South West, and London – feature at the top of the list of later life mortgages, accounting for almost two thirds of the value released.
Why an LPA is important
If you no longer have mental capacity to make decisions for yourself due to illness or injury a Lasting Power of Attorney (LPA) allows someone you have already appointed and that you trust to take decisions on your behalf. This might include releasing equity from your home.
LPAs are legal documents in which you can nominate one or more people as your attorneys to make decisions on your behalf about your financial affairs and your health and welfare.
For your family and loved ones, knowing you have LPAs in place provides peace of mind if you have an equity release plan as they will be able to draw your cash reserves on your behalf.
When to set up your LPAs
You can only set up LPAs when you have the mental capacity to understand what they are and their implications. The alternative is for your loved ones to apply to the Court of Protection which can be a long and expensive process. In the meantime, your finances could be frozen.
Setting up your LPAs is not normally a requirement when you release equity from your home, but the Equity Release Council recommends that people entering into a drawdown lifetime mortgage plan should do so. If you don’t, and you haven't taken all of your lifetime mortgage drawdown amount, the only option would be to apply to the Court of Protection to access the funds.
For example, with your partner you might draw down £20,000 immediately and ring-fence another £20,000 for later so that you won’t have to pay interest straight away. However, to access that amount you must both have mental capacity and be able to sign the documents. In a case like this, having an LPA is essential to be sure you can access further funds from your drawdown plan.
Please get in touch if you are considering a lifetime mortgage and would like to know more LPAs.
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