Equity release
in guiding people
through the equity
release process"
Stuart Angus,
Associate
In recent years a variety of financial institutions have launched a range of products that fall under equity release category.
They're aimed at allowing homeowners to release lump sums of equity/capital to supplement their income.
For some, these schemes appeal because they allow you to remain in your home and may reduce potential future inheritance tax liabilities.
How do equity release schemes work?
There are a variety of schemes available but most fall into the following two categories:
Lifetime mortgages
There are three main types
- lifetime roll-up mortgages – no monthly repayment is required and the interest is effectively 'rolled up' or added to the capital borrowing
- interest only mortgages – the capital amount outstanding remains the same but you pay the interest each month.
- Home Income Plans – you receive an annuity i.e. a regular income for life based upon your age. Interest is deducted from the monthly annuity payments.
Home Reversion Plans
Here you sell part or all of your property to the plan provider in exchange for either a lump sum or an income, together retaining a right to continue to live in your property for the rest of your life.
In general, the sum of money you receive will be considerably less than the market value of the percentage you sell to the plan provider. This is because the plan provider will have to wait some years before getting any money back.
Reducing the risk
Look for the SHIP logo. SHIP (Safe Home Income Plans) is a trade organisation set up by providers of equity release plans and which has its own stringent code of conduct, much tighter than the Financial Services Authority (FSA) regulations. The benefits of choosing a provider that is a member of SHIP are:
- they give you the right to switch to a suitable alternative plan should your circumstances change, without penalty
- insist that you appoint your own solicitor to advise you independently on the loan conditions before they'll agree to release any money
- guarantee that you can't lose your home
- provide a guarantee that you'll not owe more than your home is worth
How can Access Legal from Shoosmiths help?
If you or a loved one is considering equity release, it's really important that you receive both expert legal and financial advice.
Initially, we recommend you seek financial advice from an experienced Independent Financial Adviser (IFA).
Most schemes have a variety of clauses and conditions and it is really important you or your loved one understand these before entering into them legally.
We have helped many clients with handling the legal aspects of equity release and will make sure we explain all the terms and conditions.
Important things to consider
Be aware that if you're presently entitled to means tested benefits, equity release may reduce or lead to you losing your entitlement.
We recommend involving your family in your decision, as any money you receive will inevitably reduce the likely inheritance benefits for your descendants.
