Equity release Dos and don’ts

Posted on September 28, 2010

The trade body for equity release providers, SHIP, reports that an estimated £213.4m was advanced to homeowners in the first quarter of 2010. With much improved flexibility and better safeguards it is hardly surprising that more and more people are considering this route as a method of supplementing their retirement income. For many, unlocking some of the value of their home can be a perfectly appropriate way of enjoying, or even surviving, retirement. A financial adviser who specialises in this market should be consulted, and they will discuss with you the many implications of equity release that need to be considered. Blueprint offer a referral service to provide equity release solutions to clients, although it is a new area within the business that certain Blueprint members and advisers will shortly be able to offer directly.

DO consider viable alternatives: Should you move to a smaller property instead? Are you claiming all the benefits, such as pension credits, help with council tax or home repairs which may be available to you? Remember that your eligibility for these benefits may be affected if you receive a lump sum or extra income from equity release. Conversely it could assist your Inheritance Tax position – your adviser can help you to clarify your position.

DO discuss what type of equity release would suit you best: You can sell a proportion of your home’s value outright (home reversion) or enter into a ‘lifetime’ mortgage, where the amount you borrow and the interest accrued is returned to the provider when your home is sold. Make sure you discuss the ‘drawdown’ version – particularly appropriate if you simply want to augment your income now and then. The total amount you can borrow is established at outset, but the great virtue of this method is that you only pay interest as and when you ‘drawdown’ any proportion of the agreed amount, which should dramatically reduce the total interest owed.

DO ensure your provider is a member of SHIP (Safe Home Income Plans). Engage a Solicitor to act on your behalf and remember to update your Will.

DON’T consider equity release too early. Some providers will consider applications from age 55 but the later you leave it, the less interest mounts up and the more equity remains in your home for your legacy or to put towards care fees.

DON’T forget that there will be fees to pay for arranging the plan and that you remain responsible for the upkeep of your home.

DON’T forget to consider telling family members. Your legacy is your business, but you may feel that they should be kept informed about your plans.

Are you one of the many who are ‘house rich’ but cash poor? As more pensioners battle to get by on their incomes, the popularity of equity release is sure to continue to grow.

This is a lifetime mortgage or home reversion scheme. To understand the features and risks, ask for a personalised illustration.

No guarantee can be given that the information provided is accurate in the present or the future. It is not intended to constitute either a statement of applicable law or financial advice, and responsibility cannot be accepted for any subsequent loss following activity or inactivity by any individual or organisation. Indeed, such information should NOT be acted upon without first receiving appropriate and specific professional advice.