The downturn in the housing market has affected the sale of equity release schemes. Lenders are far more conservative on property values. The life expectancy continues to increase as mortality rates drop. This means less money is available and the schemes look less attractive.
The Alternatives to Equity Release.
Sell and move into rented accommodation. Income from capital investments is very low at the moment so it to is unlikely that you will be able to service the rent from the proceeds alone.
Down size, perhaps significantly, to a small apartment or cheaper property or sheltered housing.
Move in with a relative if appropriate. Rich relatives may be interested in buying part or all your property knowing what they will inherit.
Borrow money on the security of the property and pay the interest from other income. Equity release is like this except the interest rolls up until you leave the property.
Sell part of the property or take in a lodger.
Types of Equity Release Scheme
Home reversion: A financial company buys a share of the home. When the house is sold, the company takes its cut of the profits. Usually, the company will buy 50-70%. The older you are the higher % that you will be able to take out.
Home income plan: The mortgage company offers a mortgage on the home (can be second mortgage). This mortgage is then used to buy a lumpsum for retirement or an annual income. Interest payments are taken from this income and the original loan amount is repaid from the final sale of property.
Interest-only mortgage: You get a lumpsum from remortgaging your house. When the house is sold, you (or the executors of your will) repay the lump sum. In the meantime you have to pay monthly mortgage interest payments.
Lifetime mortgage: You borrow a lump sum or arrange to have a monthly income. After the sale of the property you arrange to have everything paid back including the interest on the original loan. This means you can take out a mortgage, but not have to worry about paying money back during your lifetime. The debt is repaid out of the house sale.
Shared Appreciation Mortgage. Some lifetime mortgage schemes allow you to share in the increase in house value. In an era of rapidly rising house prices this can make a significant difference to the final outcome.
Which is Best Type of Equity Release Scheme?
To some extent it depends on your individual circumstances and how long you might expect to live. Obviously, this can be difficult to predict (or even think about) It is worth reading carefully all the details of products such as these because the industry has been criticised by Which magazine, the FSA has also raised concerns about whether they offer value for money
Drawdown schemes are set to become more popular. You will be able to release equity as and when it is needed.
Equity Release Plans criticised at BBC
Reasons for Using Equity Release Scheme?
- One third of those who took out equity release schemes in the first quarter of 2011 did so to repay other debts. source Key Retirement Solutions
- Raising a one off capital sum for a project or special holiday.
- Supplementing pensions or other income.
- For medical treatment or to fund residential care.
- Supporting other members of the family.
A few more notes on reverse mortgage schemes mentioned previously.
Equity Release Pdf by FSA
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Good article.
I discovered that the Equity Release Warehouse was a good place to start, whilst talking about equity release with my parents. The site is very informative and the ability to make an appointment with an independent financial advisor is a brilliant idea.
A lot of this info is now out of date – for example, Shared Appreciation Mortgages are no longer available in the UK. All genuine equity release products, such as home reversions and lifetime mortgages, are now regulated by the Financial Services Authority (FSA). Consumers should look for firms that are authorised and regulated by the FSA, as many “sale and rent back” companies claim that their products are equity release and it can be easy to confuse the two. Sale and rent back offers no security in your home, unlike equity release plans that are heavily regulated to ensure consumer safety. We are an authorised and regulated equity release company and provide more info on this on our website – http://www.syhcharterhouse.co.uk. We also offer a checklist of important questions to ask when considering any kind of equity release that you can download online.
An OK starting point, as Rachael suggested needs updating.