Equity Release Schemes UK- Equity Release Plans UK, Equity Plans

Equity Release

WHAT IS EQUITY RELEASE?

Equity release is a means of turning part of the value of the home into accessible cash so that it can be used for whatever purpose it was intended.

Equity release, unlike traditional mortgages offers the option of making no repayment until you or your spouse dies or moves into Long Term Care.

With an Equity Release scheme you:-

Have to be over a certain age and own your own home
Can get a lump sum, regular income ,or both, and still continue to live in your home

WHAT ARE THE REASONS FOR DOING EQUITY RELEASE?

Norwich Union/Mintel research 2005 state the main reasons for doing equity release are, in order:

House improvement
Holiday
Insufficient income
Debt repayment
Assisting family
Buying a car
Healthcare
IHT planning (Inheritance Tax)

Money Made Clear- Just the facts about equity release

THE ALTERNATIVES TO EQUITY RELEASE

There are various ways of increasing pensioner’s income levels:

Claiming benefits available
Grants
Cutting living costs
Dip into savings
Downsizing
Asking family

WHAT TYPES OF SCHEMES ARE THERE?

There are two forms of Equity Release, these are:

Lifetime Mortgages

You take a loan secured on your home and continue to own it. There are currently two types of Lifetime Mortgage.

With access to the latest sourcing systems let us tell you, without any commitment & FOR FREE, how much you can raise on your property -- enquiries@youretirementstrategies.co.uk

Interest Only Mortgage
Rolled Up Interest

For interest only mortgages you pay the interest on a monthly basis. The mortgage is redeemed when the house is sold (downsizing or entering a care home) or if you die.

Interest rates can be fixed or variable. Some plans, called Home Income Plans provide an income from the money released by purchasing an annuity.

A rolled up interest loan is where you pay no interest on the mortgage taken out. Again when the property is sold the mortgage is repaid. The amount you can borrow can grow quickly especially if you take out a lump sum at the start.

Some lifetime mortgages can include a shared appreciation element. This means you agree with the lender that they can have a share in any increase in the value of the home when it is sold.

Home Reversion Schemes

With a reversion scheme you sell part, or all, of the property to a reversion company, bank or insurance company. The price is usually between 20% and 50% of the current value depending on age. You will normally be paid less than the value of your home, typically between 35% and 60% because they cannot resell the property until death or entry into a care home. The house will revert back to the lender if you go into a care home

The reversion company provides an income and / or a lump sum and a guarantee that you stay in the property completely rent free for as long as you live or until the property is sold.

The minimum age for reversion schemes is usually higher than for lifetime mortgages.

One of the main differences between reversion schemes and lifetime mortgages is that with reversion schemes any increase in the value of the house will go in full or part to the reversion company. With lifetime mortgages a rise in house prices is retained by you the owner.

TAX IMPLICATIONS AND EFFECTS ON STATE BENEFITS

There is no point raising money from your home if it merely results in a corresponding reduction in state benefit support. There is a range of benefits where entitlement is not affected by the income and / or capital generated by equity release, because they are not based on a means test but depends on satisfying conditions relating to National Insurance contributions, disability or other non-means tested criteria. There is however a full range of means–tested benefits which may be affected by equity release.

As this area is a very complicated area we will provide, free of charge a report, individual to your needs, on benefit entitlements, tax allowances, local authority grants and the effect of equity release schemes on means tested benefits. The report is prepared by a company called Fintal and is backed by the Council of Mortgage Lenders.

The report will meet all the requirements of the current FSA legalisation. It ensures client benefit income is maximised, and enables us to present clients with options for consideration.

SAFE HOME INCOME PLANS (SHIP) GUARANTEE

SHIP is a company supported by the leading providers of home income and equity release plans. It was launched in 1991 and is dedicated entirely to the protection of plan holders and provision of safe home income and equity release plans.

All participating companies are pledged to the SHIP code of practice.

The members of SHIP agree to provide fair, simple and complete presentation of their plans. The benefits, obligations, variables and limitations must clearly be set out in their literature, including all costs which the applicant has to bear in setting up the plan, the position on moving, the tax situation and the effect of changes in house values.
The client’s legal work will always be performed by the solicitor of his or her choice. In all cases, prior to the completion of the plan the solicitor will be required to sign a certificate to the effect that the scheme has been explained to the client.
The SHIP certificate will clearly state the main cost to the householder’s assets and estate e.g. how the loan amount will change, or whether part or all of the property is being sold.
All SHIP plans carry a ‘no negative equity’ guarantee i.e. you will never owe more than the value of your home.

The evolving market

As explained above, the market for regulated equity release products seems to be diversifying. Some providers have reported their customers' average age is falling and income increasing, with equity release being used for more “ lifestyle” purposes. Others report that equity is being used increasingly to settle outstanding debts and pay for care costs.

SHIP believes that there is not a single “ market” for equity release, but rather several markets, defined by different customer, product and advice needs as follows:-

	CUSTOMER	NEEDS
1.	Those with long term care needs and ineligible for state funded care due to the value of their assets. Faced with choice of moving into residential care, or paying for care at home.	Using equity release to fund care at home and avoid a forced move to residential care.
2.	Vulnerable, older, very low income and no other assets. Possibly in debt.	Necessity and “ last resort” purchase
3.	Older, low income and no other meaningful assets. Living costs becoming a burden.	Struggling to manage and need help to do so.
4.	Newly retired, adequate pension income and reasonable assets, but high expectations.	Maintain standard of living
5.	Approaching, or in retirement, with good pension income and range of assets. Financially Comfortable and capable.	Improving lifestyle, aspirational purchase.
6.	High income, large asset portfolio. Approaching retirement age. Strategic use for ER based on financial advice.	Tax and estate planning.