Think before unlocking cash in your home,
Equity release may seem like the answer to your problems but make sure you consider all the long-term implications
‘Boost your pension; have the holiday of a lifetime; pay for home improvements. You can do any of these – and more besides – because the home you own is worth a lot. And there is a friendly adviser ready to help you achieve these dreams. If you are an older person, apply now to unlock the value of your property.’ At least that’s how the adverts generally go. But these commercials come with small print – or in the case of radio, fast read-out warnings. Freeing up cash from the value of your home is technically called “equity release”. The idea is you have paid off the mortgage and its value has soared. And, if your home is worth £100,000, £200,000 or much more, that money can’t be unlocked unless moved either somewhere cheaper or into rented accommodation. Equity release promises you can take value from the property and spend it on whatever you want. And no one has to pay a penny back or worry about the cash until either you (and your partner) die or go into long term care homes. The most popular scheme is the “lifetime mortgage”, where you take a new loan corresponding to what you want. There’s usually a minimum age – 55 often – and a maximum slice of the property’s value, generally 60%. A second, less used, plan is Home Reversion. Here you sell part or all of your home to a specialist company in return for cash or an income for life. But like all plans involving money, you need to read the small print and be ultra-cautious before you sign anything. And as this can involve property you might leave to your family, you need to involve them. Despite those adverts, there’s a lot in equity release you might not like when you get to the small print. The lifetime mortgage usually comes with an interest rate higher than normal loans. These can be as high as 6% – fixed for life. Some are lower, but they won’t allow you to take out more than a third of the property value. At 6%, what you owe doubles around every 12 years. If you take out £50,000 when you are 65 and live to 89, your debt is now £200,000. Reputable lenders state the loan can never exceed the home’s worth when the mortgage is repaid. Home reversion schemes can be mean when it comes to valuations.