At present there are three types of equity release:
Under lifetime roll-up mortgage schemes, the provider lends you the cash and takes a mortgage charge over your property. The debt is eventually repaid when you die. These schemes account for about 90 per cent of the present market. Interest is compounded monthly or annually, usually at a fixed percentage rate, and this is added to your original loan, so your equity capital in your home is likely to reduce over time after deduction on of the outstanding loan.
Interest-only lifetime mortgages set the level of debt at the outset. you pay the interest on the loan and the debt is repaid when you die. You benefit from any increase in the house value. The debt never increases, so it looks high in the ealry years but the longer you live the greater your equity capital in the house, assuming property prices continue to increase.
Finally, under reversion schemes, the provider buys a share (or all) of your property. This purchase price is discounted (for example they might pay £30,000 for a 60 per cent share in a £100,000 house) to reflect the fact that the provider will not be able to take its share of the house value until you die. The longer your life expectancy the less they will pay for a share of your house.
Regulation
The Financial Services Authority (FSA), the chief watchdog, started to regulate lifetime mortgages in October last year. Reversion schemes will come under the FSA's scrutiny shortly. In addition, members of the Safe Home Income Plans (SHIP), a self-regulatory body, guarantee cerrtain features. The most important of these is a 'no negative equity' guarantee, so the amount you owe will never exceed the value of your home.
We can help you make an informed choice about how to balance your immediate needs with your longer-term objectives. Inevitably, there is a compromise between extracting equity from your home and passing on wealth to your family when you die. if this is an option that you would like to explore, please e-mail or contact us.
IT IS IMPORTANT TO CHECK THAT THESE SCHEMES WILL MEET YOUR NEEDS
IF YOU WANT TO MOVE OR SELL YOUR HOME OR IF YOU WANT YOUR FAMILY TO INHERIT IT.
