Equity release

National Money is seeing a growing level of enquiries relating to Equity Release, which is hardly surprising in view of the very low returns being seen from interest rates on savings which are relied upon by many retired people who have put money aside for years expecting to live on the income from those savings.

A recent report titled Housing and Finance in Later Life, compiled by the University of Birmingham, found that more than a third of equity release customers used the extra cash to help clear their money problems, while almost half have put it towards essential house maintenance.

At the same time, retired homeowners have more than £765 billion tied up in their houses which cannot be unlocked through the usual mortgage route which traditionally requires the prospective borrower to prove affordability and maintain a programme of repayments to the mortgage, which does not stand up based upon incomes solely from state and personal pensions.

The report also highlighted that for many of those using equity release, selling their home and downsizing to a cheaper property was not an option. Age UK says that although more than two-thirds of over-65s are homeowners without a mortgage, many are living on low to modest incomes and struggling to maintain their homes. One in seven (14%) of those surveyed were in receipt of pension credit, and some of the respondents felt there was no option but to use equity release to pay for housing repairs in order to continue living in their homes – a key concern for many older people.

Equity release is a way in which homeowners aged over 55 can raise cash from their property, though this is not an option to be taken without a great deal of thought first. It’s a big step to take and one that should not be considered without gaining a full understanding of how these schemes work, and what is available to you. In fact we recommend that you take specialist advice on this subject.

Lifetime Mortgages

Lifetime Mortgages work pretty much in the same way as if you had remortgaged your house normally, but instead of making monthly repayments, the interest charged rolls up onto the sum borrowed and is repaid along with any cash withdrawn from the mortgage when the property is sold after the owner’s death. Some products may offer an option to pay the interest on an ongoing basis rather than let it roll up.

A variation of this product, which has become increasingly popular, is the ‘drawdown scheme’. Such an option allows the homeowner to take cash from their home in instalments rather than in one lump sum, which can be beneficial in controlling the level of interest charged.

Reversion Schemes

Reversion Schemes require that the homeowner sells a proportion of their home to the ‘reversion’ company in return for a cash sum.

Equity Release can be a very useful way of making your assets work for you, but it is vital that you gain the right advice and ensure that its benefits and pitfalls are fully understood before making any decisions. A good advisor will take you through all the types of schemes and ensure you find the best for your own situation.

Equity Release may involve a Lifetime Mortgage or a Home Reversion plan. To understand the features and risks National Money recommend you take advice from a professional. This is for residents of the UK only. For more information call us on 08448 247 260 or contact us from this page: Equity Release Questions