Equity Release Schemes Allow Older Home-owners To Raise Funds

By Author: James Baker
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Equity release schemes are a means by which home-owners who have retired, or are coming up to retirement age, can raise some money from their home. There are two main types of scheme: lifetime mortgages, and home reversion plans. The market for both types of scheme is now regulated by the Financial Services Authority (FSA), who can provide a very useful fact sheet explaining the options which prospective customers have, and some of the potential drawbacks. There is also a fact sheet from the charity Age UK.

Equity release may be a suitable option for those who are in their mid-50s, or older, who own their own home, and who want either a cash lump sum, or extra income, or both. Schemes such as lifetime mortgages and home reversion plans allow people to release some of the value tied up in their home, and spend that money during their lifetime.

There are two main types of scheme on offer: lifetime mortgages, and home reversion plans. With a lifetime mortgage, a loan is secured against the value of the home. There are number of options here. The mortgage can be a home income plan, a fixed repayment mortgage, an interest ...
... only mortgage, or a roll-up mortgage.

Lifetime mortgages are repaid when the home owner ceases to live in the property. This can be either through death, due to moving into a care home, or due to moving to another property.

With a lifetime mortgage the homeowner remains the legal owner of the property, with all the rights and responsibilities which that entails. This contrasts with a home reversion plan, where ownership, or part ownership of the home is transferred to a different party. This is usually done through a reversion company, who either buy the home themselves, or arrange for an investor to buy it.

The original owner will have a long-term lease, giving them the right to remain living in the home for as long as they wish to do so. Often the minimum age for a home reversion scheme will be higher than for a lifetime mortgage.

The market for both types of equity release scheme is now regulated by the Financial Services Authority (FSA). The FSA offer a useful fact sheet explaining the options for customers considering releasing value from their home through this type of scheme. Providers selling the schemes are obliged to consider the personal circumstances of each customer, and sell a product which is suitable for their needs.

All providers offer personalized illustrations, in the form of a Key Facts document. This document should be in a standard format, making it easy to compare products from different providers. Providers are also obliged to explain how equity release schemes will reduce the amount that that homeowners can leave to beneficiaries in their estate, and how they may affect the eligibility for certain state benefits. All charges and fees must also be clearly explained. Although the selling of equity release schemes is regulated by the FSA, there is also a voluntary scheme, the Safe Home Income Plan (SHIP), which provides a number of guarantees, including a no negative equity guarantee.
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Equity release schemes can help retirees realise dreams of a super holiday by releasing equity from their home. You should research the entire market to find the best equity release schemes.