Equity release schemes

Equity release has become very popular in recent years. The increases in values of property in the last ten years, and the relatively poor returns on savings, have meant that people have realised that they’re sitting on a growing asset and would like to make use of it.

Since 1997 property prices have trebled in some areas, and most have doubled, so it is no surprise that people have been looking into equity release and how it could work for them. This would seem particularly attractive to people who are retired or semi-retired who could use the increasing value of their homes to boost their spending capability.

There are a number of schemes on the market that say they will help deliver that to their customers. They can achieve this, but as usual it is worth doing some research before investing, and equity release will not be for everybody.

Equity release schemes have differences, but fundamentally they enable you to take out a loan against the value of your property. It works like this: You receive a loan as cash, either as a lump sum, but more usually as a monthly payment, and you carry on living in your home. The company recover the loan by either selling the property after your death or by recouping the money from a sale if you were to sell your property and, for example, move into a care home.

Most schemes require you to be between 55 and 70, and have a property worth at least £30,000 - £40,000, and preferably own it freehold. If you do meet these conditions, then you are eligible, but is it right for you?

You need to know if the scheme will actually allow you to move house if you eventually need to. As said, you might need to move into a care home, or into sheltered housing, or you might wish to be nearer your family or downgrade into a more manageable house, such as bungalow.

How long do you think you might live? People over 60 usually benefit most from cash payments that come in monthly. Older people may receive less from this kind of equity release scheme in relation to the value of the house.

These schemes have implications for your family and their inheritance, as most of the schemes rely on the provider selling the house on your death. Thus your property will have no value for your family and will not be part of your estate on your death. Your family might be a little disappointed in that.

You also need to consider if you are living with a younger partner, relative or friend. The scheme may stipulate that upon your death they will not be allowed to continue living in the house and will need to seek their own home at their own expense.

Income from an equity release scheme counts against you for means-tested benefits. The Minimum Income Guarantee  has gone up in value and Pension Credits arrive in the autumn. Cash received from any equity release scheme may negate some of the benefits you could have received or any assistance with paying for care.

Age Concern recommends that people considering taking out an equity release scheme should seek advice from a solicitor and an independent financial adviser as the schemes can be complicated and daunting. It would also be wise to discuss your thoughts with your family and anyone living with you. This could easily result in a heated discussion as many offspring will view property as the biggest inheritance that may come their way. It is natural for them to do so, and discussions on the subject can be very difficult as the subject of money can be touchy, but it is the most sensible course, and other solutions may be brought forward.

Other solutions may include investigating whether you are eligible for means-tested benefits that you are not receiving at the moment, or others such as Attendance Allowance or Council Tax Benefit. These may amount to enough to keep you comfortable without having to take such a fundamental and far-reaching decision as taking equity release would be. Help might also be available for repairs or property adaptation if required, from your council.

Another solution might be to move to a smaller, cheaper property and in that way you could realise a decent cash profit from your home, which could give you a tidy income for many years, while at the same time preserving your property ownership for the future. Your new home would probably gain in value until your death at which time the family would benefit from inheriting the property as part of your estate.

Age Concern offers a fact sheet on the subject of equity release. It is a serious decision which should take a lot of though and discussion given its potential impact on so many people.