Why consider Equity Release?
	What should you consider before Equity Release?
	What is Equity Release?
	Which Equity Release scheme?
	The importance of Independent advice
	What are the costs?
	Testimonials

Inshore Independent Financial Advisers Ltd is an appointed representative of The Whitechurch Network Limited which is authorised and regulated by the Financial Services Authority.

Which Equity Release scheme?

While there are a range of different schemes offering lump sums and/or regular income, they all work on the same principle: they lend you a part of your home’s value in return for a share of the proceeds when you die. In most cases you will need to be at least 60 years old, have no outstanding mortgage (or you will need to use the equity release money to pay down the existing loan), and own a property in reasonable condition. Equity release plans can be complicated products and are a major step for many people. Your house is almost certainly the most expensive asset you own and it is also your home, good advice is therefore essential.

Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, both recommend getting independent financial advice before proceeding. An Independent Financial Adviser (IFA) will look at your overall finances to see if equity release is really the best option for you, help find the right type of scheme – bearing in mind that in some cases you could risk losing state benefits and may have to pay extra tax.

The two main types of Equity Release are lifetime mortgages and home reversion schemes. Over 95% of our clients elect to take out a modern form of equity release known as a lifetime mortgage. With this scheme, you release a proportion of the equity in your property whilst continuing to own it 100%. This means that you continue to benefit from any increase in your property value in the future.

Lifetime mortgages

The lender gives you a lump sum a monthly income (or both). There is also the option to have an agreed borrowing facility that can be drawn down if and when you need it. This means that interest would only be accrued on the additional funds once drawn down which may also limit or prevent any impact that the additional funds may have on means-tested state benefits, should you be in receipt of any. You pay nothing – the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid out of the proceeds from the sale of the property after you die. How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow. Generally, you will not be advanced more than 50% of the value of the property.

Pros

• You receive an amount of money that is tax free to spend on whatever you want.
• You keep ownership of your home and can continue to live there until you die or go into long-term care and can still benefit from any rise in house prices in the future.
• Most loans are fixed-interest, so reducing risk.
• You don't have to make any monthly repayments during the lifetime of the loan, as the loan and interest are rolled up and repaid by the sale of your property when the plan ends. This is normally when you die, or move into long-term care.
• There's the possibility of leaving some equity to your heirs, depending on the size and length of your loan.

Cons

• The uncertainty about how much will have to be repaid at the end – and how much will be left for your family.
• Interest payments can mount up quickly and will further reduce what your family will inherit. Your family could end up with nothing from the sale proceeds even though the lump sum you were lent only seemed a fairly small proportion of the home’s value.
• Interest rates can be high.
• You may not be able to get a top-up loan later.

Home reversion schemes

You sell your home or a share of it to a reversion company for a lump sum or in return for a monthly income (or a combination of both). Technically you become a tenant, albeit with the right to continue living in your home rent-free (or sometimes for a nominal rent) for the rest of your life. When the property is sold – usually when you die – the reversion company gets its payout. If, for example, you sold 50% of your property to the reversion company, it gets 50% of the proceeds – including any growth. If you sold 25% of your property, it gets 25% of the proceeds, and so on. In addition, the reversion company will also only pay you a percentage of the current market value for the share of your property it buys. This is because you get to carry on living in the property until you die, and the company may have to wait years for its return. If you sell all of your property to the reversion company, for example, you will typically get between 30% and 50% of its current value. It will rarely be more than 60%. The actual figure will depend on your age (and your partner’s). Older people will get more, and men get more than women – because of differences in how long they are expected to live.

Pros

• There are no ongoing repayments to make as the reversion company makes all of its money when the property is sold.
• You know at outset what share of your home (if not its value) you will be leaving to your family.
• You continue to share in any rise in the value of your property (unless you have sold its entire value).
• You can take extra cash advances, depending on the amount you originally took.
• If you are a smoker or have a serious illness, you may be able to get a bigger payment.
• You can continue to live in your home rent-free until you die or go into long-term care.

Cons

• The reversion company will buy at a discount to the current market value. The big discount at which the reversion company will want to buy makes these schemes less suitable for people in their 60s.
• If you die soon after taking out a plan, you could effectively have sold off your house (or a share of it) on the cheap. Some schemes give families a rebate if you die within the first few years of signing up.
• Reversion companies can be choosy about the properties they take.

Your family

While equity release plans can be a good way of cutting inheritance tax bills, they will also reduce what your family will inherit. While it should ultimately be your choice whether to sign up to a scheme, it is probably a good idea to discuss it with close family members and/or anyone who might have expected to inherit your home. This may help avoid any unpleasantness or misunderstandings. If the property has been a family home for a long time, bear in mind that your children or other relatives may also have an emotional attachment to it. They may even have been thinking of living in the property after you die. Children or other relatives may be prepared to help you out financially instead of you taking out an equity release plan. They could then inherit the whole property. We can advise on any tax issues involved.

How to avoid any risk

Look for plans carrying the SHIP logo (for Safe Home Income Plans). SHIP is an industry body set up to promote safe equity release schemes. Companies who are members provide a number of guarantees, such as:

• The right to live in your property for life
• The freedom to move to an alternative property without penalties
• You will never owe more than the value of your home

If the scheme’s income comes from an annuity, you’ll get a better rate the older you are. If you are just retired, it may be worth waiting a few years before signing up to an equity release scheme in order to get a better deal. Equally if you are very old or in poor health you should think carefully about schemes paying monthly incomes – you may not live long enough to get a decent return.

Equity Release/Home Reversion/Lifetime Mortgage – To understand the features and risks, ask for a personalised illustration.