Anyone who has turned on the TV during the day will be familiar with the barrage of adverts extoling the virtues of equity release. With the cash in our pockets seemingly worth less and less, are these schemes the answer?
As with everything, there are pros and cons – there really is no ‘one-size-fits-all’. Just because a friend, acquaintance or bloke-in-the-pub thinks it is a good idea, doesn’t mean you should go ahead. When considering equity release options, you need to properly consider your own circumstances to see if this is something that would work for you.
For some people, releasing equity from their homes gives them cash to meet the costs of home improvements, holidays or other expenses that can’t be comfortably met from normal income. They are able to stay in the homes they’ve live in for years and suffer no significant disadvantage. For other people it is a different story and they can find themselves saddled with high interest rates, draconian payment deadlines and little to no inheritance to pass to their children.
So – how do you safely make the decision?
Top Tips for Equity Release
Speak with an independent equity release broker – do not be tempted to just apply to the companies advertised on TV. Both the broker and the mortgage should be regulated by the Equity Release Council; details of their members can be found on their website.
Ask some key questions:
- Is the plan being offered a Lifetime Mortgage or a Home Reversion Plan? These work in different ways and each have advantages and disadvantages. Your advisor should be able to explain which option is most appropriate for you and why.
- What is the interest rate?
- How long after death (or second death if a couple) does the loan need to be repaid? (Most are 12 months but there are some which require payment within 6 months; this is unlikely to be achievable.)
- How flexible is the mortgage? Some will allow monthly repayments.
- What are the early repayment provisions?
Think carefully about your future plans.
- How long do you plan on staying in your current home? If you move house within a few years, you could end up paying a hefty early repayment charge.
- What is in your Will? Were you planning on leaving the house to a particular beneficiary on your death? How will that be affected by the equity release?
- Is anyone else living with you at the property? What would happen if you died and they needed housing?
Consider all alternatives – could you downsize and release funds that way? Are you eligible for any home improvement grants? An independent financial advisor can look at other options to make your existing funds work harder for you so that you may not need to release equity in the house.
Above all, the golden rule is never feel forced to rush into a decision and do not be afraid to ask for a second opinion. If an advisor is reputable, they will want you to have properly thought through your options and made a careful decision that is right for you. If you do not feel comfortable or understand what you are being asked to sign, walk away.
By Faye Evans, Partner at Churchers Solicitors LLP (STEP and SfE accredited) with contribution from Gemma Roberts, Solicitor.
Sources of advice
Be aware of where information is coming from. Advice should be independent and tailored to your needs. There is a huge amount of information on the Equity Release Council website at www.equityreleasecouncil.com Use their ‘find a member’ facility to find appropriate advisors and solicitors who can guide you through the process. Not feeling confident using the internet? You can also telephone the Equity Release Council on 0300 012 0239.