News/Events

Now might be a good time to release equity from your home [10th July 08]

Although it would appear that oil prices are rising faster than house prices are falling, as the credit crunch bites after another round of bad results, perhaps those that have been looking at releasing capital from their property could well be advised to do so sooner rather than later?

I know only too well that the lack of confidence means that many clients are biding their time but if they sit on the fence for a year and hang fire, then the value of their house will quite possibly fall and there could be less equity to take. The Council of Mortgage Lenders is predicting a 7% drop in house prices this year but the Halifax and Nationwide are predicting even greater falls.

Releasing equity from you home is an emotional subject and in many cases a difficult decision to make, especially if some members of the family are not in agreement. But, with spiralling day to day living costs and ever increasing prices, then there may be no alternative for some in order to supplement their retirement needs.  In fact, releasing equity from the home is still perceived to be a product of last resort but there are many other uses such as home improvements; buy a second home; help grandchildren with school/university fees or simply to invest the lump sum, perhaps for inheritance tax planning. And with house prices falling funds released now could be used as a deposit on the first home for a grandchild when the time is right. It is currently a buyers market and a first time buyer with a healthy deposit is sure to be able to secure a good deal. Wouldn’t it be nice to see your beneficiaries enjoying their inheritance whilst you are still around?

It should be remembered that the credit crunch may have had a severe effect on the traditional mortgage but not so with the equity release market. This has seen some solid lending on very competitive terms and in some cases a better deal than for ordinary residential mortgages.

There are 4 types of plan:-

·         Lifetime mortgage

·         Drawdown plan

·         Home reversion

·         Home income

Each type can help the client to make the most out of their retirement by releasing cash from their home to spend entirely as they choose and will in most cases allow no monthly repayments, clients to stay in the house as long as they want or move if they so wish and a "no negative equity" guarantee so that the amount owed cannot ever exceed the value of the house.

There are over 40 schemes approved by SHIP (Safe Home Income Plans) which is a voluntary organisation set up in 1991 to promote safe equity release products and safeguard client interests.

Maybe, if clients can wait a year before going into it, then my feeling is they probably do not need to get involved. The big question clients must answer is ‘does the scheme offer value for money or not?’

It can be quickly seen that specialist advice is paramount and, in fact, advisers must pass an exam before they are able to give any advice on this subject.  That I believe was an excellent move by our governing body.

To understand the features and risks of a lifetime mortgage ask for a personalised illustration.

This article was written by Langtons - Published in the Western Morning News, Money, 10th July 2008