Equity Release is simply the ability for over 55’s to access the cash (equity) tied up in their homes to be used for any legal purpose. More and more providers are coming into this market and product innovation has allowed many different plan options from drawdown facilities through to income plans and many more. More information can be found here.
Equity Release, as it is now known, started life in the 1960’s. There were three plan types available, these were: Home Income Plans, Home Reversion Plans and Shared Appreciation Mortgages. These predominately were annuity backed schemes to generate a little extra income. There was very little flexibility for changes throughout retirement once taken.
There were a number of headlines in the 1980’s and Equity Release was seen as a bad choice due to a large number of dangerous schemes being mis-labelled as “Equity Release”. These schemes used a variable rate of interest for the mortgage loan and the investment bonds being taken also having a variable rate. These bonds provided an income which was higher (at the time taken) than the interest repayments on the mortgage, thereby giving the clients an income on top. Therefore, when interest rates increased to nearly 15% in the late 80’s, investment bonds reduced therefore any income being provided from the bond was insufficient to meet the mortgage repayments. Many homeowners were unable to meet their commitments and were repossessed.
Due to this a trade body was launched in 1991 called Safe Home Income Plans (SHIP), this was then followed by today’s version, the Equity Release Council. This trade body introduced product standards by which everyone offering “Equity Release” products must abide by, these are:
You will never owe more than the value of your home. Neither you nor your estate will be liable to pay any more than the proceeds of the sale of your home after agents and solicitors fees.
Product can be ported to a new home as long as that new home is acceptable to the lender as security for the equity release loan.
Right to remain in your property for life or moving into long term care. Provided the property remains your main residence and you abide by the terms and conditions of your contract
Interest rates must be fixed or, if variable, a cap (upper limit) which is fixed for the life of the loan.
These product standards have allowed public trust to be restored in this market, all advisers providing advice on Equity Release product must be suitably qualified. All our later life experts at Equity Release Brokers are fully qualified.
NB – Be aware that the product standards will only apply to Lifetime Mortgages and Home Reversion Plans, they are not applicable to Retirement Mortgages which have an end date (normally age 85).
Equity release allows homeowners over the age of 55 to unlock the value of their property without the need to sell or downsize.