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There are two main types of equity
release scheme. They are known as lifetime mortgages and home reversion schemes. With
lifetime mortgages, the mortgage is repaid from the proceeds when you die or,
for example, on moving into a nursing home. In the case of a home reversion
you sell all, or a percentage of your home, to a third party and the lender
will receive the relevant percentage value of the property when it is sold.
You can usually take a scheme in joint names so that it continues until the
second death. If you release cash from your property you might give
it to
beneficiaries now, to be used for school fees for grandchildren, for example, or as a method of
Inheritance Tax Planning. Alternatively, it may be invested as an annuity to
provide a regular income for life.
Equity release is a very specialised type of loan and should
be discussed in great detail with all those who may have an interest in the
property before being entered into.
You should also take professional advice.
EQUITY RELEASE PRODUCTS - RISK WARNING
Equity release schemes can be very helpful but are not suitable for
everyone. It is important to understand the risks and to understand the
cost, the level of flexibility (if you might want to move home) and the
possible impact on future state benefits.
The FSA (Financial Services Authority) produces a very useful Guide to Equity Release which highlights things to consider such as :
- whether the scheme has negative equity guarantee, so that if the value
of your property decreases any outstanding debt after sale of your
property won't be passed on to your next of kin
- whether the lender will allow you to move home should you want to
- on-going responsibility for maintaining the property and the
associated costs
- the terms and conditions of leases for home reversion and under what
conditions you could lose your home
The FSA
Guide also highlights a variety of other important
considerations and associated information. We have included a link to the
current version at time of writing but suggest you use the site search
facility to ensure it is the most recent.
Age UK have recently begun an equity release service, so have a look at this page on their website for more help and information.
 As
well as the risks associated with Equity Release you may also need to
consider risks based upon how
you use the released funds e.g. if you are using the released funds to
reduce potential Inheritance Tax and you don't survive for seven years.The above is not a complete list of all the risks you may face and it is
essential to obtain advice. We also recommend that you discuss any advice you are given
with a solicitor who will be required to effect the necessary conveyancing work.
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