At times like these, sitting on a property worth £300,000 is little consolation if you’re struggling to get by on a meagre retirement income. So it’s no surprise that a growing number of older people are choosing to tap into the value of their home through equity release schemes -whether to pay for home improvements or a holiday, or boost daily income.
By Caroline Bloor
From a lender’s point of view, equity release loans are low risk so, despite the credit crunch, rates have remained very competitive and the choice of products good. 'Unlike the mainstream mortgage market we have not seen an upheaval in either rates or the ability of providers to lend,' says Dean Mirfin, Key Retirement Solutions, independent specialist advisers. 'If there is to be a period of unsettled property prices, those considering equity release may well be wise to lock into a deal sooner rather than later.'
But you need to do your homework first. These schemes are expensive and complex, and can have a knock-on effect on your tax and benefits entitlement. To be eligible for most schemes you should be aged 55-70, have a property that is worth at least £30,000-£40,000 and no outstanding mortgage.
There are two main types of scheme - which suits you will depend on your circumstances.
With a lifetime mortgage, homeowners take out a secured loan (or series of smaller lump sums or regular monthly payments) on their property. The interest charged is then rolled up and only repaid along with the amount borrowed when the homeowner dies (or taken into care) and the house is sold. Generally, no more than 50% of the property’s value will be advanced.
The most popular style of lifetime mortgage is ‘drawdown’ where you decide on a maximum amount of equity you want to release and then drawdown the cash in stages when you need it.
These schemes have been regulated by the Financial Services Authority (FSA) since October 2004.
The problem with lifetime mortgages is that the interest can build up, leaving you owning hardly any value in your home. For instance, if a 60 year old borrowed an £40,000 lump sum with a lifetime mortgage at a rate of 6.5%, the debt would more than triple to £140,945 by the time they reached 80. 'Relying on rising house prices to ease this burden is a gamble,' says David Elms, chief executive of www.unbiased.co.uk.
However, most reputable companies are members of Safe Home Income Plans (SHIP). This organisation guarantees you will never owe more than the value of your home; have the right to live in your property for life or the freedom to move to an alternative property without penalties.
The second type, home reversion plans, involve the homeowner selling a percentage of their home’s final value in exchange for a lump sum or monthly income. At death, the sale of the house reimburses the lender and leaves the rest of the cash for any heirs.
Home reversion schemes have only been under the FSA’s auspices since April 2007. These schemes have, in the past, been criticized as poor value for money. Homeowners typically receive 30-60% of the property’s current value.
Check out the mortgage calculator, loans, credit cards & savings comparison tools
Compare current rates on loans, savings accounts, credit cards & mortgages with this handy tool
Thinking of buying or selling? Find out what's going to happen to house prices in the coming year
Our presenter could be popping round to your house for a consultation and a cuppa
.jpg)
Your Comments
Post your comment
Please note: In order to post a comment you need to be registered and logged in to Channel 4:
Sign In Here or Register Here
Comments closed
Comments are closed at the present time
Comments
Thank you for your comment!
Your message will be reviewed and the best ones will be published below.
If you intended to make an official comment to Channel 4 please contact us.