Equity Release

If you arrive at retirement with less money than you might like, your home may provide a means of boosting your income or providing cash for items you may otherwise not have been able to afford. Increasing life expectancy, for instance, means that more people will have to utilise more of their assets to ensure a comfortable retirement.

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Equity release enables homeowners, usually over the age of 60, to raise money against the value of their property either as a cash sum or a regular income. The advantage of doing this is that there is no need to make any repayments until the property is sold, usually on your death. The two main types of plan are:

• Lifetime mortgages- where you take out a mortgage on your property and interest is rolled up until it is repaid (usually on death)
• Home reversion plans- where you sell all or part of your property to a provider and retain the right to live there for the rest of your life.

Lifetime mortgages account for over 95% of total sales of equity release plans. In general, home reversion plans should pay out more cash or a higher level of income but you forego the benefit of any rise in the value of the proportion of your property entered into the plan.

The uses to which people put the money raised include:-

• Home improvements
• Supplement income
• Car purchase or holidays
• Paying off other debts
• Helping family members
• Private healthcare

There are an increasing number of providers of equity release plans in the market, including some well known names and recently the plans they offer have become much more flexible, allowing you to draw down amounts as and when you wish.

Taking out an equity release plan can be complex and we would recommend anyone to take unbiased equity release advice from an FSA-authorised financial adviser.

The first thing to consider before taking out a plan is whether you could meet your needs in another way. For example a short term loan or even a grant or other benefits available from the State, local authorities or charitable organisations. Another option may be moving to a smaller house to release some money, although this can be quite an upheaval.

Equity Release points to note:

• What are the upfront costs of arranging a plan, such as valuation fees and arrangement fees?
• How much will the plan cost over the long-term? Remember that most people can expect to live a long time in retirement and a small difference in interest rates can add up to a large amount of money when the mortgage is repaid. A fixed charge mortgage ensures the cost does not increase as you get older but can cost more if you die in the early years.
• How much do you really need to take? Taking more than you really want may seem attractive but you are unlikely to be able to invest the excess at a return greater than the rate of interest you will pay on the mortgage.
• How flexible is the plan if you require more money at a later date?
• How flexible is the plan if you wish to move house or repay the mortgage early?

Getting an equity release quote

To make sure you opt for exactly the right choice, professional advice is available from FSA-authorised practitioners, who are unbiased and can give you a range of quotes.

There is absolutely no obligation for seeking advice and you will at the very least learn what sort of quotes are available for your situation.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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