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Equity Release

The fantastic rise in property values over the last few years has meant that many older homeowners have built up significant equity within their home.

In addition to this, retired homeowners are often in the unfortunate position of being “asset rich and cash poor” where their only or major asset is their home and income continues to be modest, in many cases being only the basic state pension.

Equity release schemes have the potential to overcome this problem and tap into the store of equity and increase income.

Equity release will generally take two forms:-

Lifetime mortgages whereby a loan is secured on the property, with the resulting capital being used to provide, in many cases, a tax efficient income. Interest on the loan can be payable or rolled up on the loan, with the loan and accumulated interest, if appropriate, being repaid on death or when the property is sold. This will enable the homeowner to retain complete control over their property.

Home reversion plans are where part or all of the property is sold to a home reversion company and when the property is eventually sold the company will receive part or all of the proceeds. Again, the capital can be used to provide a tax efficient income.

Each route has its own advantages and disadvantages and equity release is not suitable for everyone, however, it can provide homeowners with a much needed income and, in addition, in certain situations can have some Inheritance Tax mitigation benefits.

In an effort to raise standards in the equity release arena, many providers subscribe to the Safe Home Income Plan (SHIP) code of practice which is dedicated entirely to the protection of plan holders and the promotion of safe home income plans. The important thing to bear in mind is that the equity release market is a very complex one and it is imperative that independent advice is sought on the suitability of this type of scheme.

Lifetime mortgages as from October 2004 are regulated by the Financial Services Authority. A lifetime mortgage is a loan secured on your home. The loan and interest are normally repaid from the proceeds of the sale of your home when you die or move into long term care. With a home reversion plan you sell all or part of your home for cash. However you do not get the full market return for doing so.

The above equity release mortgage detail is for information purposes only as does not constitute financial advice under the Financial Services and Markets Act 2000. When considering any type of equity release product, it is important that you seek independent legal advice.

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