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Equity Release for Homeowners

The phrase `equity release` is often heard nowadays and gets much coverage in financial sections of the newspapers. So what is it all about?

Put simply, it`s using the stored up value in your home to release cash to be used for other purposes, and has proved especially attractive to pensioners. In recent years the price of houses has soared, particularly in comparison with stock market investments, building society deposit accounts or other forms of saving..

At the same time the reduction in annuity rates for pensioners and the generally disappointing performance of pension funds has meant that many people at or approaching retirement are faced with living in very reduced circumstances as pension values have fallen.

So retired people are naturally interested when they hear of a scheme that could give them more income or cash in retirement whilst allowing them to stay in their home. There are now a number of schemes available, often from reputable British financial institutions such as Life Insurance companies, Banks and major Building Societies.

These plans work basically by giving you a loan against the value of your property in cash. Usually you can receive the money monthly possibly via an annuity, or sometimes as a lump sum.

The lender then recovers their money when you die or when you sell your property, perhaps to move into a care home..

These schemes come in various names, most commonly Home Income Plans, Home Reversion and Lifetime Mortgages.

There are significant differences between the various types and most specialists in the field advise individuals interested in these plans to look carefully into each type before committing themselves.

In all cases you need to be aware that there may be tax and benefits implications for you whilst you are alive, and also that the value left for inheritance by your heirs may reduce to nothing.

Some schemes require you to be aged between 55-70, some considerably older, have a property worth at least £80,000, and be a freeholder with little or no remaining mortgage or other charge on the property.

As well as tax or benefit implications you will also need to consider other issues such as what will your partner do when you die, will you be allowed to sell or move, what happens if you decide to repay the loan, and what is involved if you need to move into care.

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Copyright First Union 2007