Ten Top Equity Release Tips

Releasing the equity from your home can be a good way to supplement your income in retirement, but there can be pitfalls.

1. Check that equity release is right for you

If you (and your partner) are nearing retirement and you own your own home, you could be eligible for an equity release plan and benefit from a cash lump sum. The amount will depend upon your age and the value of your property.

No matter what equity release scheme you choose, it will affect the amount that you can leave as an inheritance. That is why you should talk through the issues with your family before you take the next step.

2. Seek financial advice

It is always best to talk to a financial adviser who will be able to look at your situation and recommend the most suitable route. 

Contact an adviser through this website for FREE no obligation advice.

You should ask your adviser about the different equity release options, the costs associated with taking out a plan, and what any repayment charges are if you decide to end your plan early. All equity release providers that are members of SHIP will also insist you talk to an independent legal adviser to guide you through the relevant legal work. 

3. Make sure your provider is a member of SHIP

Safe Home Income Plans (SHIP) is the organisation dedicated to the protection of equity release planholders and the promotion of safe home income and equity release plans. All participating companies have pledged to observe the SHIP code of practice, which guarantees the safety of all their plans.

To find out which companies are members of SHIP, log on to its website: www.ship-ltd.org

4. Check out a lifetime mortgage

Lifetime mortgages used to be called cash release plans or roll-up mortgages. The amount you borrow is secured against your home and you don't have to pay anything back until you die or need to go into long-term care. Interest builds up from the start of the loan until it is repaid. A no negative equity guarantee ensures the lender will always accept the value of your home as full repayment for the loan and your estate will not have to pay anything on top.

5. Consider a home income scheme

A home income scheme is another type of product where the money from a lifetime mortgage is used to buy an insurance policy that provides a guaranteed income for the rest of your life.

6. Look at a reversion scheme

Here you sell part of the value of your home to a reversion company in return for either a cash lump sum or an income.

The amount you receive will be less than the value of the proportion you have sold. You can live in your home for the rest of your life, but you will not be the sole owner and may have to pay rent. When you die, the property is sold and the reversion company keeps its share of the proceeds.

7. Check whether the product you have chosen is regulated

The Financial Services Authority (FSA) currently regulates lifetime mortgages. If you see a product advertised as a lifetime mortgage, find out exactly what type or product it is. Regulation means advisers and lenders have to adhere to the FSA's strict code of conductor face heavy punishment.

The FSA does not regulate reversion schemes at the moment, but has said it will do in future.

8. Think about how house price changes will affect you

All SHIP members have a no negative equity guarantee on their lifetime mortgages. This means that if the price of your house falls, you or your estate will not have to pay any extra to compensate.

With a lifetime mortgage, an increase in the value of your house can help to offset the interest on your loan. With a reversion scheme, the company will take the agreed share of your property.

9. Check your entitlement to welfare benefits

A large cash sum could affect your entitlement to state benefits. This will depend entirely upon your financial circumstances and it is an issue you should bring up with your adviser if you think it is relevant to your case.

10. Check how a plan will affect your tax liability

A large cash sum could also affect your current and future tax situation, and not necessarily for the worse. If your children are looking at a large potential inheritance tax bill, for example, releasing some of the equity in your home now may mitigate this. But this is not always the case and you should speak to a specialist tax adviser for further details.