Equity Release Schemes
Financial Advisers Advice:
Equity release schemes for me represent reasonably poor value for money.
I am old enough (only just) to remember the problems the last time there was a surge in house prices and the resultant increase in demand for equity release. A lot was learned from this and its clear that most providers of such products and financial advisers have heeded the needs of the consumer and are providing more responsible advice. Most of the major players are members of SHIP (safe home income plans), a self-regulatory trade body that has been in existence for many years, currently representing 19 providers. The requirements for a provider/product to be SHIP-compliant are:
1. No-negative equity guarantee;
2. Portability (although some providers do have restrictions on what accommodation clients can move into);
3. Having separate solicitors acting for the client and the lender.
Notwithstanding any of that there are a number of issues you need to consider before making a decision. Remember first and foremost all you are doing is getting into debt. It can be spiced up in whatever marketing twaddle is shoved in front of you but it is a debt and it’s a debt that you will probably never repay.
Equity release is often sold as taking ‘equity’ from your property – ‘after all its yours’ was one marketing drive I saw. I can see the benefit of equity release after considering selling your property and downsizing or selling and then renting. If you need cash its probably one of the cheapest ways to borrow if you do it right.
There are a few options to consider. A home reversion scheme is one choice where you simply sell some of your home to a lender who pays you a discounted amount for the amount they purchase. They don’t represent good value, as the discount is too high. To explain, if you sold 50% of your £200,000 house you would not get £100,000. The amount you would get is much less to take account for future rent for their half etc.
The next type is a lifetime mortgage where you borrow a certain percentage of the value of your home and the interest on this rolls up on the outstanding loan. You are guaranteed you will never be in a negative equity situation (where you owe more than the house is worth). This guarantee is as useful as a chocolate watch as the amount you are allowed to borrow represents a very low amount compared to the actual value of the property and as such there is a low chance the debt will ever reach the house value. Once again this option gets the thumbs down, as the amount you pay in interest is prohibitive.
Expert’s view: Score: 8 out of 10.
Very good. Take good independent financial advice before completing an equity release plan
Equity release schemes for me represent reasonably poor value for money.
I am old enough (only just) to remember the problems the last time there was a surge in house prices and the resultant increase in demand for equity release. A lot was learned from this and its clear that most providers of such products and financial advisers have heeded the needs of the consumer and are providing more responsible advice. Most of the major players are members of SHIP (safe home income plans), a self-regulatory trade body that has been in existence for many years, currently representing 19 providers. The requirements for a provider/product to be SHIP-compliant are:
1. No-negative equity guarantee;
2. Portability (although some providers do have restrictions on what accommodation clients can move into);
3. Having separate solicitors acting for the client and the lender.
Notwithstanding any of that there are a number of issues you need to consider before making a decision. Remember first and foremost all you are doing is getting into debt. It can be spiced up in whatever marketing twaddle is shoved in front of you but it is a debt and it’s a debt that you will probably never repay.
Equity release is often sold as taking ‘equity’ from your property – ‘after all its yours’ was one marketing drive I saw. I can see the benefit of equity release after considering selling your property and downsizing or selling and then renting. If you need cash its probably one of the cheapest ways to borrow if you do it right.
There are a few options to consider. A home reversion scheme is one choice where you simply sell some of your home to a lender who pays you a discounted amount for the amount they purchase. They don’t represent good value, as the discount is too high. To explain, if you sold 50% of your £200,000 house you would not get £100,000. The amount you would get is much less to take account for future rent for their half etc.
The next type is a lifetime mortgage where you borrow a certain percentage of the value of your home and the interest on this rolls up on the outstanding loan. You are guaranteed you will never be in a negative equity situation (where you owe more than the house is worth). This guarantee is as useful as a chocolate watch as the amount you are allowed to borrow represents a very low amount compared to the actual value of the property and as such there is a low chance the debt will ever reach the house value. Once again this option gets the thumbs down, as the amount you pay in interest is prohibitive.
Expert’s view: Score: 8 out of 10.
Very good. Take good independent financial advice before completing an equity release plan
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© 2007 Worldwide Financial Planning - this site is intended for UK investors only
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Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422
© 2007 Worldwide Financial Planning - this site is intended for UK investors only
By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'