Equity release - is it the right thing for you?
01/12/2005
According to the analysts in the financial sector, releasing equity from our homes will soon be extremely commonplace. Last year £1.2 billion was borrowed in this way. By 2010 that figure could be £5 billion.
Small change in the bigger scheme of things, but still a sizeable amount. For many people who are “asset rich and cash poor” dipping into the value of their home is one of their few alternatives. Recent research by Age Concern shows that a massive 40% of people are worried about their retirement income.
For many of us, of course, it’s a nifty way to loosen the reins a little in later years - doing up the house, or fitting it with equipment to enable you to stay their longer. Or perhaps giving your family a helping hand.
“Equity Release,” says Age Concern, “has recently attracted a lot of media interest. But very simply it is a way in which you can borrow against the security of your home, without having to make monthly repayments. For homeowners over 60, these plans can be an ideal solution to the problem of insufficient savings or income.”
However there is also a caveat. “If you are considering using the value of your home to improve the quality of your life, it is important you understand what these plans are, how the different types work, what you should look out for and, as importantly, what the alternatives are.”
They point out, for instance, that releasing money into your bank account to cushion you in the years ahead, above certain savings limits, could adversely affect your entitlement to some benefits.
There are two principal types of equity release scheme: Home Reversion and Lifetime Mortgages. With the former you sell your home, or part of it, to a private reversion company or individual and receive an income or capital - while retaining your right to stay in your home during your lifetime. With a Lifetime Mortgage (which includes home income plans and roll up loans), you effectively take out a mortgage but retain full ownership of the property.
So make sure you check out all your options before you sign on the dotted line - taking professional legal advice and, if you have plans to leave your family money, consulting them too.
And don’t forget there are other options. You could downsize, or take a lifetime lease in a property, or even sell up and rent the property you want. And if it’s just a few thousand to pay off stubborn card debts you are after, there may well be better ways to borrow money.
But there are plenty of sound companies out there now offering schemes. So make sure you go with someone you feel you can trust and who offers the right terms for YOU.
For a free Age Concern guide “Using your home to improve your finances” call free on 0800 169 5276or drop onto their website: www.ace.org.uk.