Equity
Release
 In retirement we are often in the situation where we live in a property that has
grown in value considerably over the years and may well be mortgage free.
For many of us our
home is our major asset, and with pension income possibly not keeping pace with
general living expenditure increases, more and more people are looking at ways of
releasing this locked up capital in their property.
Equity release is the term used to describe the ways you can do this to
either provide a regular income and/or a lump sum.
There are two main types of equity
release scheme. They are known as lifetime mortgages and home reversion schemes. With
lifetime mortgages, the mortgage is repaid from the proceeds when you die or,
for example, on moving into a nursing home. In the case of a home reversion
you sell all, or a percentage of your home, to a third party and the lender
will receive the relevant percentage value of the property when it is sold.
You can usually take a scheme in joint names so that it continues until the
second death. |
| If you release cash from your property you might give
it to
beneficiaries now, to be used for school fees for grandchildren, for example, or as a method of
Inheritance Tax planning. Alternatively, it may be invested as an annuity to
provide a regular income for life.
Equity release is a very specialised type of loan and should
be discussed in great detail with all those who may have an interest in the
property before being entered into.
You should also take professional advice.
EQUITY RELEASE PRODUCTS - RISK WARNING
Equity release schemes can be very helpful but are not suitable for
everyone. It is important to understand the risks and to understand the
cost, the level of flexibility (if you might want to move home) and the
possible impact on future state benefits.
The FSA (Financial Services Authority) produces a very useful
Guide to Equity Release which highlights things to consider such as :
- whether the scheme has negative equity guarantee, so that if the value
of your property decreases any outstanding debt after sale of your
property won't be passed on to your next of kin
- whether the lender will allow you to move home should you want to
- on-going responsibility for maintaining the property and the
associated costs
- the terms and conditions of leases for home reversion and under what
conditions you could lose your home
The FSA
Guide to Equity Release highlights a variety of other important
considerations and associated information. We have included a link to the
current version at time of writing but suggest you use the site search
facility to ensure it is the most recent.
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