Equity Release Explained
Home is where the money is!
Unlock the value in your home and enjoy the good life! Clear your debts and have more money to spend on yourselves. Safe, Regulated Equity Release plans are available to homeowners from age 55 years.
Great Stour Associates provide a truly impartial service, based upon a whole of market assessment, that could save you thousands of pounds. Safe Home Income Plans (SHIP) guarantees.
There is a changing attitude towards retirement as people can now look forward to an increasing lifespan. Those reaching retirement today aspire to a life of activity and comfort, and want to continue to afford regular holidays and enjoy life to the full. This results in many people approaching retirement with a quandary – aspirations in excess of retirement income. For most people, the home they live in represents their major capital investment and, as they grow older, they find themselves in the frustrating position of having a very valuable asset on the one hand and a restricted income on the other.
“Equity Release” can be described as the transfer of an interest in a property from the owner to a third party in exchange for a cash sum or regular income payments. Equity release schemes have been available since the 1960s.
In 1992 a new Trade Body was formed called “Safe Home Income Plans” (SHIP). Today, the majority of equity release providers are members of SHIP and subscribe to the strict code of ethics insisted upon by the SHIP rules. These rules include guarantees that you will never lose your home, no matter what happens to the stockmarkets, or interest rates, or property prices, and that you have the freedom to move to a suitable alternative property if that becomes your wish.
Equity release plans have been regulated by The Financial Services Authority (FSA) since 2004 and are now subject to both “The FSA Conduct of Business” rules, providing client protection, and “The Financial Ombudsman Service” in the event that a complaint is not resolved satisfactorily.
Financial Advisers offering equity release advice must be qualified (by written examination) and hold both “The Certificate in Lifetime Mortgages” and “The Certificate in Regulated Equity Release”. SHIP member companies will refuse client introductions from advisers who do not hold the appropriate qualifications.
The modern equity release products broadly fall into two camps - “Lifetime Mortgage” available from age 55 years (younger spouse), and “Home Reversion” available from age 65 years (younger spouse). Whilst both schemes operate in a different way, each allows the capital value of the home to be used to raise cash whilst continuing to live in it.
The size of the cash sum that can be made available is directly related to the age of the younger spouse. Thus, a larger cash sum would be made available to a 75 years old applicant than to a 65 years old applicant. Also, it is usually possible to raise a larger cash sum by way of a Home Reversion Plan, for a given age, than with a Lifetime Mortgage.
A “Lifetime Mortgage” offers the homeowner the opportunity to take out a loan on their property in return for a cash lump sum or for regular income payments. The interest on this loan is “rolled up” across the lifetime of the plan. There are no monthly payments to make. Legal ownership of the home is retained and the loan plus “rolled up” interest is repaid only when the last survivor of the marriage goes into a care home on a permanent basis, or on their death.
With a “Home Reversion Plan” a part or all of the property is sold to a home reversion company, or an investor selected by that company, in return for a cash lump sum or regular income payments. The percentage share of the home that is sold will dictate the amount of cash, or regular income payments, that can be made available. Total ownership of the home will no longer exist as legal ownership will be shared with the reversion provider. In return, a guaranteed lifetime lease will be provided which means that the occupants can continue to live in the home for as long as desired. There may be a charge of a “peppercorn” rent (e.g. £12 p.a.) or none.
Most importantly, Home Reversion Plans must not be confused with the unregulated “Sell and Rent-Back” schemes currently being advertised. They are not the same thing!
One of the many uses for an” equity release” plan is to provide the cash sum required to clear an existing mortgage, or other forms of loan. This releases money, previously tied up in monthly payments, which can now be used to improve day to day living.
Some homeowners may choose to utilise an equity release scheme so that they can make financial gifts to family members now, during lifetime, as opposed to making them wait until the death of the donor – this could be assistance with university fees for the grandchildren or possibly the deposit for the purchase of a first home.
For those owning a high value estate, the opportunity for making “lifetime gifts” could be helpful in reducing the potential liability to an inheritance tax charge on their joint estate at the time of death. Advice on inheritance tax mitigation should be obtained from a qualified independent financial adviser.
Then others may choose to raise money for the purchase of a holiday home in the sun. There really are no limits to the way in which you might want to spend the money raised through equity release..
It is unfortunate that the media have been guilty of giving out an inaccurate and, more importantly, an outdated portrayal of equity release. This has resulted in many people being unsure of these plans. The modern equity release plans available today are safe, FSA regulated and provide a number of SHIP guarantees. As a result, many thousands of older homeowners are now using these modern plans with confidence.
There are in excess of twenty different regulated equity release providers and many of these providers have more than one type of plan available. Expert guidance from an independent, qualified (by examination), equity release adviser is, therefore, of paramount importance in determining the suitability of equity release in general, and then the choice of a specific product depending upon the homeowners’ needs, their personal and financial circumstances, their preferences, their objectives and their aspirations.
Responding to a provider’s own advertising is not advised as the company can only offer its own plans. Comparisons from different providers cannot be provided and this could result in a costly mistake. Hence, the requirement for independent advice.
It is important also to take account of any State Welfare Benefits that are being received as an equity release plan may lift the individuals out of eligibility for some or all of these Benefits.
For further information, the free "FSA Money Made Clear" series booklet entitled "Just the Facts About Equity Release Schemes" can be obtained from The Financial Services Authority, telephone 0845 730 0104.
Age Concern also publish their own booklet “Using Your Home As Capital”, telephone 0870 442 2120. Their website also provides a number of useful “Information Sheets” relating to equity release.
A free Equity Release Information Pack, which includes a copy of the "FSA Money Made Clear" series booklet entitled "Just the Facts About Equity Release Schemes", is available from Great Stour Associates, 75 Stour Street, Canterbury CT1 2NR, telephone 01227 479933.
Equity Release may not be suitable for everyone. It may involve a Lifetime Mortgage or a Home Reversion Plan. To understand the features and risks ask for a personalised illustration.
