Having seen any number of TV adverts, many people ask ‘what is equity release’? In the UK, it is a term given to financial products that allow older homeowners to take cash out of the value of their home. In all cases they retain the right to continue living there for the rest of their lives. They also do not have to make any payments to a plan during their lifetime.
Equity release plans are designed for those over the minimum age of 55. The amount you can release depends broadly on two things: the age of the youngest applicant and the property value.
There are two main types of equity release schemes – Lifetime Mortgages and Home Reversions. By far the most common is the lifetime mortgage. For an explanation of the features and options available with both, please click on the links.
The first plans were arranged in the 1960’s. The market remained fairly limited for many years. However, it started to take off around 2010, with the total amounts released quadrupling in just eight years.
The equity release market suffered in the late 1980’s from a lack of regulation and client protection. This has led to suspicion and hostility towards equity release generally. However, much has been done to make plans as safe and transparent as possible, and concerns have been comprehensively addressed.
What is it being used for?
We see a wide range of reasons for money being released in this way: These include:
- Home improvements (the most common use for at least some of the money raised)
- Paying off existing matured mortgages because borrowers have no other means of paying them off, and they don’t want to move
- Paying off debts like credit cards and loans
- Gifts to family (including helping family to buy a home by providing a deposit)
- Topping up the monthly income to live on
- Buying a car, caravan or motorhome
- Provision of long term care, either in the home or in a care setting
Applicants can use the money raised for any legal purpose. The plan provider does not generally care what you do with it! However, we always advocate taking only what you need at the time. Arrangements can sometimes then be made to provide a reserve fund to access more money later.
What protection do you get?
Most importantly, applicants are now offered a high degree of reassurance and protection when taking out a plan. It is acknowledged that these are likely to be plans for life, for people already in later life. They need to be carefully, considerately and thoroughly advised on their most suitable option.
Regulation – The Financial Conduct Authority
The Financial Conduct Authority (FCA) took over the regulation of all forms of Equity Release in 2012. This organisation replaced the Financial Services Authority (FSA) who regulated both types of equity release from 6 April 2007. This regulation requires Advisers to hold a professional qualification in equity release advice. There are also strictly defined requirements for the advice process.
Equity Release Council – Statement of Principles
Most product providers are members of the Equity Release Council. This is the industry body for the equity release sector.
The organisation requires lender members to adhere to the principles of the ‘Safe Home Income Plans’ (SHIP) Standards Board. This was born out of the predecessor organisation also known as SHIP.
This sets the standards and principles required of members of the Equity Release Council. Their Statement of Principles also specifies certain guarantees all applicants must receive:
- Members agree to provide fair, simple and complete presentations of their plans
- The client will always be able to use the Solicitor of their choice to make the legal arrangements
- A SHIP certificate will be completed clearly showing the main costs to the client’s assets and estate. This includes, for lifetime mortgages, how the loan amount may increase. For Home Reversions it shows how much of the property is being sold
- All SHIP plans carry a ‘no negative equity’ guarantee. This means the applicant will never owe more than the property is worth. This is irrespective of what happens to house prices or the size of the debt
- The client will have the right to occupy their property for the rest of their life if they are able and choose to do so
Andy Wilson Financial Services is proud to have been appointed as a member of the Equity Release Council in April 2013.
Equity release advisers
Equity release advisers are required to be professionally qualified to give advice. However, this alone is not enough. A good adviser will have experience and knowledge of all of the available schemes. They will also be able to consider whether a better alternative might be available for your funding.
We recommend that your family also be involved in your discussions about equity release. This ensures there are no surprises later when you have gone.
These plans can be complex and you should always seek professional advice before making any commitment. Andy Wilson has significant experience in the provision of understandable and clear advice and the arrangement of all types of equity release plans.
EQUITY RELEASE MAY REQUIRE A LIFETIME MORTGAGE OR HOME REVERSION PLAN. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.