How have the Equity Release offerings changed and is it for you?
This article is for information only and no recommendation is being made or should be construed from the contents of the article. Always seek independent financial advice prior to taking any action.
The main aim of equity release is to give you greater financial freedom when you are older by freeing up some of the financial value of your home and give you cash to spend while you are still fit and well.
However, over the years, it has received some negative publicity, with many stories about the elderly being ripped off and providers hiding the real cost of equity release.
But it would seem that these types of financial plans are growing ever more popular with a record £1.24 billion of housing wealth being unlocked via equity release schemes in the second half of 2016, with total lending for the year reaching £2.15 billion. This made this market the fasting growing mortgage segment last year.
Why is there such a difference of opinion?
Previously, back in the 80’s when Equity Release was first introduced, not only were there a few disreputable providers of this product in the market who were looking to take advantage of the elderly, but also there was less choice and the offering was less sophisticated.
There was no cap on the interest accrued during the product owner’s lifetime meaning that some lenders went on to chase the homeowner’s children to clear outstanding debts after their parents died.
What has changed?
The whole Equity Release market has now moved on.
To begin with, most providers now offer the Lifetime Mortgage solution, where you don’t usually have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan), as opposed to the Home Reversion option, which means you sell some or all of your home to a home reversion provider to release equity but normally at way under the true market value of the home.
On top of this, all reputable equity release plans come with a no-negative equity guarantee which means that if the eventual mortgage debt exceeds the value of the home, the provider cannot chase dependants or family members for the shortfall. The provider takes the hit.
When looking for a provider, it is crucial to make sure that they belong to the Equity Release Council (formerly known as Safe Home Income Plans or SHIP), which provides the no negative equity guarantee.
And, as with most industries these days, there are now strict rules governing the Equity Release providers about the information they must share with prospective customers, including the true costs of taking out the Lifetime Mortgage. Financial advisers must also encourage buyers to discuss any plans with their children.
Is Equity Release for you?
There are significant benefits of Equity Release. As a homeowner, it gives you the opportunity to take a lump sum, a regular income, or both, from your property without having to move house.
This could help top up your income thus allowing you to go on the amazing holidays you had always dreamed of in your retirement, or pay for some home improvements to add value to your home, or even help out your children to get them on the property ladder themselves.
Equity release can also help older people who do not hold private pensions and are reliant on the state pension for their income, but with value in their homes. This can help fund a more worry free and satisfying lifestyle in retirement.
A reputable plan will guarantee that you’ll be able to continue living in your home until you die or go into long-term care. And when signing up to an Equity Release agreement you do not have to take the agreed amount out all in one go. You could take it as and when finance is needed, which would lessen the long-term interest on the plan.
When considering Equity Release, it is vital that you seek professional Financial Advice as the solution is not necessarily suitable for everyone and you must consider your options carefully.
For some, downsizing to a smaller property could be a more risk-averse way of generating a pot of cash, with less hassle, or you may have investments elsewhere that a financial adviser could help them maximise.
If you would like to explore what the best move would be for you or want to know more about Equity Release, talk to one of our Financial Advisors on 01342 316 185, or take a look at our website www.prosperityifa.com.