Guide to equity release
And as the population continues to get older, this trend is certain to continue. Thousands of older people are asset rich but cash poor. If you have a substantial amount of money tied up in your main asset that you want to get your hands on, you could always sell up and buy a smaller home. But many older people would rather not sell the family home. Equity release can offer a sensible solution for the over 55s who want to supplement their income in retirement, fund home improvements, or simply pay for the holiday of a lifetime, for example.
Equity release has been around for a while, but many consumers have been wary about it in the past. Now, however, both lifetime mortgages and reversion schemes are regulated by the Financial Services Authority (FSA).
Many equity release lenders are also members of trade body the Equity Release Council (ERC). ERC members have pledged to observe the SHIP code of practice, which guarantees the safety of all their products. You reserve the right always to live in your property until you die or have to go into a nursing home, and ERC equity release also comes with a no-negative equity guarantee. This means that no matter what happens to property prices, your family or estate will never be left with a debt that cannot be repaid by the sale of your property, providing peace of mind for you and your family.
How equity release works
Equity release can provide you with a regular income, or a cash lump sum. In return, you take out a loan which is paid off when the property is sold on your death. Or you can choose to sell a proportion of your home in return for the money. The first type of equity release mortgage is known as a lifetime mortgage, while the second is called a reversion scheme.
Pros and cons of equity release:
- Allows you to free up cash.
- Increased competition means interest rates are falling.
- Enables you to stay in your own home.
- Can cut the inheritance tax bill faced by your estate.
- A big commitment.
- Will reduce the inheritance you leave your family.
- Can impact on State benefits.