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Raising money through Equity Release
 

Even though the soaring house prices of the last decade has come to an abrupt end recently, it does mean that many homeowners at or approaching retirement age are now sitting on valuable properties. Ironically, this very same group is often hit hard by the ever-increasing costs of living, as many are reliant on fixed incomes.

 

It is therefore not surprising that more people are turning to Equity Release as a means of providing financial security and improving their lifestyles. ‘Equity Release’ is a scheme which allows homeowners to ‘release’ money from their properties either in the form of a lump sum or a regular income. The scheme is most beneficial when house values are high and tends to suit home-owners over 55 who have paid off or nearly paid off their mortgages and who wish to raise funds without borrowing money elsewhere.

 

Anyone considering Equity Release will need sound financial advice and proper legal representation. Bearing this is mind, Les Cantlay, independent adviser with Ware & Kay Financial Services Limited and Holly Stevens, conveyancing lawyer with Ware & Kay LLP address the subject of Equity Release.

 
Uses of Equity Release
Improving lifestyle and income during retirement

Equity Release can help fund the general cost of living and lifestyle improvements, travel etc.

 

Intergenerational gifting

Equity Release can be an ideal way of helping children (or other relatives) financially.

 

Enhancing Retirement Provision and tax planning

For those who meet certain criteria, funds released can be invested in pension plans, enhancing retirement income and also taking advantage of tax breaks given to pension contributions.

 

Inheritance tax planning

Equity release can help reduce any eventual Inheritance Tax bill.

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The Different Options
The most popular of these are outlined below:

 

Lifetime Mortgage

Available usually only after age 55, the amount loaned is based on your age and property value. The interest is accrued until the last remaining home owner dies, moves into long-term care or sells the property. The mortgage company will then recover the loan and any accumulated interest (including interest on interest). This method allows you to raise money and remain the owner of the property. With a lifetime mortgage, the mortgage lender should be a member of the Society of Home Income Providers(‘SHIP’), as this means that, should the outstanding balance owed exceed the value of your house when sold, the lender will not ask for the difference.

 

Home Reversion

Usually available from age 65 with no mortgage involved. The provider buys your house, gives you a lump sum, and guarantees that you can live in it, as a tenant, for a nominal rent, until the last remaining home owner dies or moves into long-term care. This method usually provides a higher sum.

 

With this scheme you are transferring the ownership of your home and the provider will be entitled to any

further growth of the price of the property.

 

The Pros and Cons

Under any scheme you need to make sure that you understand the mortgage provider’s ‘small-print’ concerning what constitutes’ long-term care’, as this differs from provider to provider. One very important point to consider is that your eventual beneficiaries may not receive as much as they were expecting and so it is advisable to let  them know what to expect. You may also lose means –tested benefits. The decision to take out Equity Release should be made in conjunction with other considerations such as downsizing or even borrowing from family. These schemes are expensive to get out of, and it is therefore essential that you consult an independent financial advisor.

 

Ware & Kay Financial Services Ltd. will be happy to advise you on Equity Release, whether it is right for you and, if so, which plan would suit you best. Meanwhile, Ware & Kay LLP’s solicitors will ensure that you are properly represented on the legal side of the transaction. All solicitors involved in Equity Release transactions are required All solicitors involved in Equity Release transactions are required to sign a SHIP certificate stating that the scheme selected has been determined as suitable by a qualified adviser and that you understand its drawbacks. The Financial Services Authority regulates all Equity Release providers and advisors. Despite its drawbacks, Equity Release will be a viable option for many people. If entered into with care, understanding and realistic expectations, it is a good use of your financial resources. to sign a SHIP  certificate stating that the scheme selected has been determined as suitable by a qualified adviser and that you understand its drawbacks. The Financial Services Authority regulates all Equity Release providers and advisors. Despite its drawbacks, Equity Release will be a viable option for many people. If entered into with care,  understanding and realistic expectations, it is a good use of your financial resources. For more information contact us.