Equity Release

Equity Release Plans

The issues surrounding pensions in the UK affects us all, but it is already a very real and daily challenge for millions of retired Britons.

However, many retired people who manage on a small pension and limited savings are also living in properties which have soared in value in recent years and with the average house price in England and Wales now standing at £184,346 (November 2007, see www.landreg.gov.uk/houseprices/), people may be not be aware of the true value of their home.

Equity release plans – also called lifetime mortgages, home reversion or home income plans – are a way of releasing cash, whether to buy that new car, to pay for a holiday or home improvements, or simply to make daily life more comfortable. These schemes essentially allow you to borrow money against the value of your home, with the debt being repaid from the sale proceeds after your death.

How They Work?

While there are a range of different schemes offering lump sums and/or regular income, they all work on the same principle: they lend you a part of your home’s value in return for a share of the proceeds when you die.

In most cases you will need to be at least 55 years old, have no outstanding mortgage (or you will need to use the equity release money to pay down the existing loan), and own a property in reasonable condition.

Equity release plans can be complicated products and are a major step for many people. Your house is almost certainly the most expensive asset you own; it is also your home. Good advice is therefore key.

Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, both recommend getting independent financial advice before proceeding.

As an Independent Financial Adviser (IFA), we will look at your overall finances to see if equity release is really the best option for you, help find the right type of scheme – bearing in mind that in some cases you could risk losing state benefits and may have to pay extra tax.

Safe Home Income Plans (SHIP)

We only use members of SHIP for equity release products(Safe Home Income Plans). SHIP is an industry body set up to promote safe equity release schemes. Companies who are members provide a number of guarantees, including: you will have the right to live in your property for life; the freedom to move to an alternative property without penalties depending on the reversion company or lender; AND THAT YOU WILL NEVER OWE MORE THAN THE VALUE OF YOUR HOME - A NO NEGATIVE EQUITY GUARANTEE!

Equity Release plans – their attractive features

* They can give a lump sum, a regular income or both. The lump sum could be tens of thousands of pounds; the income boost might be worth as much as a hundred pounds a month or even more.
* Money released from the value of your principle residence is free of tax, although if the cash is then invested there may be tax to pay on any income or growth.
* You don’t have to move house or sell your home to unlock equity. With reputable equity release schemes there is a rock-solid guarantee that you will be able to continue to live in and enjoy your home until the day you die – and in some cases still be able to leave something of the property’s value to your family.
* Of course, if you don’t have children or family to leave your property to, then equity release might seem an even more attractive concept.
* They can also be a way of cutting inheritance tax bills. Inheritance tax kicks in at 40% on everything left behind over £312,000 (2008/2009). Importantly, that figure includes the value of your home.
* The value of many properties means that Inheritance Tax (IHT) is no longer something only the rich have to pay. Equity release plans are a perfectly legal way of mitigating inheritance tax. They could be used, for example, to give a child or grandchild the deposit to buy their own property.
* They can also be used to pay for care bills without having to sell up at what can be a traumatic enough time.

Advice

Getting independent financial and legal advice before taking out an equity release plan is recommended by both the charity Age Concern and the Financial Services Authority, the UK’s chief financial watchdog.

To understand the features and risks of an Equity Release mortgage, ask for a personalised illustration. Please call us to arrange an appointment or for further information.