General Advice Regarding Equity Release and Home Reversion Schemes

There are many companies offering a range of Mortgage and Equity Release or Home Reversion schemes.

You may wish to check if the company you intend dealing with is an approved member of "SHIP" (Safe Home Income Plans). You should only buy from a Ship member, all of whom offer a "no negative equity guarantee," which means if the property's value falls below the amount of the outstanding loan, the company will pick up the loss. You should also check that this means you can continue to live in the property.

Consider carefully whether the terms being offered to you include a competitive interest rates, reasonable and fair set up charges, no penalties or early repayment charges on death or entry into long term care and good administrative support.

The majority of Equity Release Schemes tend to be arranged direct with scheme providers and not through independent intermediaries.

Of those intermediaries that do arrange equity release most will look to charge an additional administration fee.

With deferred interest schemes, interest if often capitalised annually becoming part of the total mortgage debt on which future payments of interest are calculated.

It is important you understand how State Benefits or long-term care funding entitlements may affect the suitability of a scheme. For example the amount of Income Support or Council Tax Benefit to which you may be entitled, either now or in the future, will be reduced as a result of proceeding with the mortgage.

Eligibility

To be eligible for most schemes you should be aged 55-70, have a property that is worth at least £30-40,000, and ideally be a freeholder. If you meet these conditions, questions to ask before proceeding to invest in any scheme are:

Does the scheme allow you to move house if you need to?

One day you might want to move into sheltered housing or need residential care, or move to be nearer to your family.

What is your life expectancy?

People in their 60s and 70s usually benefit most from monthly cash payments. If you are older you may receive less from this kind of plan before you die relative to the value of your home.

What are your family expecting to inherit on your death?

The condition of most schemes is that they sell your home when you die. So if you use your property for home equity release you will not be able to leave it to your family, and will reduce the total value of your estate on your death.

Are you living with a younger partner, relative or friend?

Depending on the terms of the scheme, they will need to find alternative housing in the event of your death.

What is your eligibility for means-tested benefits?

If you receive cash from a home equity release scheme this may cancel out your eligibility for means-tested benefits or help with paying for care.

Some Options

The standard way of using the Home Equity Release Mortgage is to take a lump sum. This is a way to get cash for one-off expenses such as home repairs, an extension or a new car.

It is usually possible to borrow up to 50% of the value of your property but the precise amount depends upon your age and your property's valuation. The percentage of your property's value which is available to you as a loan normally increases with your age.

An alternative version of the Home Equity Release Mortgage can give you a monthly cash release for the rest of your life (or until you require long term care or move into sheltered accommodation) plus in certain cases the option of taking an immediate lump sum.

This version of the Home Equity Release Mortgage may be preferable if your priority is to provide some secure and guaranteed cash for your future.

Some Questions

What Happens If I Want To Pay Off My Loan Early?

You should check to see if you can repay the loan at anytime but you may have to pay an early repayment charge.

If I Die Will My Partner Be Able To Continue Living In The House?

Normally if you take the Home Equity Release Mortgage out together, repayment of the loan (i.e. by selling your property) will only happen on the death or moving into long term care of the last surviving borrower.

Home Reversion Plans

These typically involve older homeowners selling all or part of their property to a specialist firm in return for a cash lump sum or income. They are then allowed to live there rent-free for the rest of their life. However, the amount people get is sometimes substantially less than the full market value.

You can usually release anything from 30% to 100% of the property value depending on the provider, and the amount paid out will depend primarily on your age.

As with all equity release products, you should always take independent financial and legal advice and talk to your family before signing up. For some people, the easiest way of releasing equity will be to trade down to a smaller property. But many people want to stay in their home.

Broadly speaking, with home reversion schemes, the older you are, the more you will be paid for your property. That is because the younger you are, the longer the company is likely to have to wait to get its cut.

Summary Guidance

We recommend you consult a specialist Independent Financial Advisor in relation to these schemes. We are not in a position to provide such advice ourselves. It will be difficult for you to find the best deal yourself. Bear in mind that a number of the schemes are only available through authorised intermediaries.

Consider all the alternatives such as moving to a smaller home. Capital raised this way will invariably cost you less in moving expenses than in Equity Release set up charges and interest.

Assuming you do not wish to move, before proceeding with Equity Release, consult and discuss your plans with your family. This will avoid any unnecessary family surprises later on and they may be able to suggest alternatives.

Choose your adviser carefully. Is he able to advise on entitlement to welfare benefits? Is he also conversant with all aspects of Long Term Care funding? Some of this may be relevant to you now or if not, may well be if you ever needed care in the future. The wrong advice could cost you dearly. An adviser specialist in all these areas will be able to explain all the relevant issues and thus help you achieve the best outcome for you.

Ask your adviser about his fees. Not all advisers will charge you a fee. Make sure you get value for money from whomever you choose.

If you are already in poorer health it may be possible to get better terms from your lender or reversion company. Make sure your adviser and lender are aware of any health problems you have.