OK, so we know that Equity Release is the process by which people aged 55 years or older can “unlock equity in their home.” This is subject to meeting the lender’s requirements. It can be achieved either by a lifetime mortgage, where you receive a regular income or a lump sum leaving the interest to accumulate, or through a home reversion scheme, where an organisation purchases all or part of your home and you receive the proceeds as a lump sum, regular income or a combination of both. These schemes have a “no negative equity guarantee” (of which you can be certain if the provider is a member of SHIP) and the amount owing is paid back upon the death of the owner, or second owner if it is a couple.
People on the way to retirement or already in retirement are finding that they may not have enough income to live on or to achieve the kind of lifestyle they would like, even though they own their house outright. Increasingly, equity release may have to be considered as an alternative to increase their income or, given the current credit crunch, to consolidate debts – but it is important to note that it should only be used as having looked at all the alternatives first.
The products available have become more innovative and complex so it is important that you use a suitably experienced financial advisor and a solicitor of your own choice to advise and guide you through the Equity-Release process.
Years ago, equity-release had a poor name. Things have changed regarding releasing equity from your home. To start off with, there has been a concentrated effort to bring standards into the industry. A voluntary code of conduct overseen by SHIP (Safe Home Income Plans) is at the root of this. Then, there are many new products available today. For example, a UK law firm has introduced a new service to assist older people through the equity release process by offering the option of a home visit should the prospective borrowers be unable to visit the office. The firm has realised the value of face to face meetings for a subject where clients are potentially vulnerable. It is also good to see a return to more traditional levels of service!
Solicitors working in this area must ensure that the potential borrower owner fully appreciates what they are doing and how it will affect them. This will include all of the legalities together with the risks and associated effects of carrying out an equity release transaction. Helpfully, the solicitor will make that the ‘suitability report’ which has to be prepared and delivered by the financial advisor in the case has covered every key area. This interlinking will give both practical help in that the clients will have a second explanation of everything which can only help their understanding and it also offers an additional safeguard to make sure that absolutely all the effects of the equity-release are understood.
The usual questions must be asked. Have the clients discussed this with their children and other beneficiaries in their Will? How about your tax position? Changes upon various benefits? How about if the clients have to enter residential care? Do they know that a large if not all the value of their home could be taken away from them over time? Are there alternatives that could be used, such as obtaining a grant or getting a loan from the family member? The financial advisor should go through all these points to make sure that you fully understand the effects of equity release before proceeding.
Information on this website should assist you together with the research you will conduct elsewhere. Choosing equity release will not be the solution for everyone but no financial product or package ever is. We are all individuals and no two people – even twins! – have the same financial needs and solutions.
Please contact me by email or telephone if you wish.
Kind regards,