Equity Release in the Spotlight

Equity release comprises a product whereby the over-55s can access equity tied up in their home, via a lump sum or a number of smaller amounts. The two main equity release options are:

  • Lifetime mortgage, where a mortgage is secured on your property, however rather than making repayments while you’re alive, interest is added to the loan. The loan amount and interest are paid back when you die or when you move house.
  • Home reversion, which involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments. The homeowner can continue living in the property, but must maintain and insure it.

Figures from the Equity Release Council show that the total value of equity release lending grew by 21% in the first quarter of 2016 on a year-on-year basis and recorded the highest Q1 lending levels on record. In what marks the 25th anniversary of the first industry standards being developed for equity release, a total of £393.3m was lent over the first three months of the year. Over the course of the first quarter of 2016, 5,175 new equity release plans were taken out – an increase of 6% from 4,880 in Q1 2015. This was also the first time the number of new plans topped the 5,000 mark in a Q1 since 2009.

While equity release can seem like a good option to access a considerable sum of money, it comes with a set of risks attached. These start with the expense; lifetime mortgages will normally be charged a higher rate of interest than an ordinary mortgage and debt can grow quickly if the interest is rolled up. Home reversion plans don’t offer anything close to the true market value of a property. It can also be difficult to downsize your home later in life as there may not be enough equity in your property to do this. Set up and arrangement fees can also be costly too.

Over time there has been much criticism over equity release schemes and rightly so. Specialist equity release advisers, even those that are FCA approved, should be approached with caution; ultimately their intention is to sell a product and not perhaps give the right advice.

Equity release can be a useful tool in supporting your retirement in later years and reducing potential inheritance tax on an estate in the right circumstances. However, we always recommend any beneficiaries are involved at meetings when discussing equity release in order to ensure that all other feasible options are explored.

Macbeth Financial Services would usually recommend that a client downsizes their house rather than take up equity release but in the right circumstances, Equity Release may be the right option. We can review all the Equity Release solutions in the market and recommend the one we feel is right for your scenario. We can offer advice in all areas of financial planning and therefore may be able to propose other options too – ones that are best for you.

If you would like further advice or information, please call us on 0118 916 5480 or complete an enquiry form.

*Information correct as of 1st May 2016

Author: Simon Claxton | July 26th, 2015

Contact the author

Simon Claxton
Get in touch:   Reading: 0118 916 5480   London: 020 7036 8767   info@macbeths.co.uk