THE CHANGING FACE OF EQUITY RELEASE PLANS

Stricter industry regulations mean that safeguards are now in place to protect customers

During the 80s, a set of products emerged on the equity release market that weren’t safe and left some customers in financial difficulty.

Since then, the industry – which offers homeowners over the age of 55 financing plans that allow them to access the equity tied up in their properties – has come under stricter regulation through a body set up to ensure products are reliable.

Now, provided plans are approved by the Equity Release Council (ERC) and they offer a number of guarantees to protect borrowers. Customers now have the right to stay in their home for life or until they move into long-term care, the right to move house in the future and take the plan with them, provided the new property is acceptable to the product provider as continuing security, and the peace of mind of a “no negative equity guarantee”, meaning they will never owe more than their home is worth.

Equity release is available to those aged between 55 and 95, who own a property worth at least £60,000, and allows homeowners to release the money tied up in their property to help boost their retirement finances.

The tax-free cash lump can be spent however the customer chooses, and the amount of money released will depend on various factors such as age and the value of the property.

Customers can still qualify for equity release even if they have an existing mortgage, although this needs to be paid off with the released funds first. There are plans available that allow homeowners to pay the interest on a monthly basis, keeping the overall cost down. There are also others that protect a portion of a property’s value which can then be passed down as inheritance.

In recent years, equity release has become a solution for older homeowners to pay off interest-only mortgages following a wave of repossessions as borrowers were left unable to pay when their interest-only term came to an end.

Equity release reduces the value of the homeowner’s property and can affect entitlement to means-tested benefits as income has been increased by freeing up property wealth.

Because of this, it’s always a good idea to seek independent advice and to involve family in the decision-making process as it will affect their future inheritance.