Why is this area important?
Many individuals have benefitted over the last few decades of having the value of their homes increase significantly. Equity Release schemes allow homeowners who are over 55 to gain access to the equity within their property, enabling funds to be raised for use at their discretion. A property can now represent a substantial part of the overall net worth of an individual at retirement, though it may also coincided with them finding they do not have sufficient levels of pension income to maintain their desired standard of living. Equity Release allows individuals to ‘tap’ into the value within their home and at Capel Court we can guide you through this process, ensuring that your interests are looked after by sourcing the best solution available, in a truly independent manner.
What solutions are there?
There are various options such as moving to a smaller home, moving in with relatives, looking to the state for assistance via grants or taking in tenants. However, many of these options may not be suitable or appropriate given the circumstances. Once these options have been exhausted, there are essentially 2 different solutions available to individuals wishing to gain access to the value of the equity in their home:
Home Reversion Plans
A Lifetime Mortgage is very similar in structure to that of a conventional mortgage; however there are a few key differences. Clients are able to raise an amount of money for use at their discretion, at which point a legal charge is placed on the property by the Lifetime Mortgage provider. The clients are then able to benefit from using this money, perhaps to pay for private healthcare, fund home improvements or alterations, make gifts to their family, or indeed for something a little more luxurious, such as the holiday of a lifetime.
The loan remains outstanding on the home and as no monthly payments are required to be made, the value of the outstanding debt can increase quite rapidly. The loan is required to be repaid when the individual moves into residential care, or when they pass away.
The Equity Release Council (formerly SHIP; Safe Home Income Plans) is a trade body set up to provide protection to consumers in addition to generally raising awareness of Lifetime Mortgages amongst the population. At Capel Court we would only ever recommend Equity Release Council compliant products as we agree with the fairness and the principles of their Code Of Conduct, which is as follows:
Equity Release Council Code Of Conduct:
(Reproduced with kind permission from Andrea Rozario, Director General of Equity Release Council).
1. To allow customers to remain in their property for life provided the property remains their main residence.
2. To provide customers with fair, simple and complete presentations of their plans. This means that the benefits and limitations of the product together with any obligations on the part of the customer are clearly set out in their literature. It should include all costs that the customer has to bear in setting up the plan as well as the tax implications, their position on moving house and the effects of changes in house values on their loan.
3. The right to move their plan to another suitable property without any financial penalty.
4. The right for the customer to choose an independent solicitor of their own choice to conduct their legal work. The firm must provide the solicitor with full details of the benefits their client will receive prior to the completion of the plan. The solicitor only signs a certificate once he or she is satisfied that their client fully understands the risks and benefits of the plan.
5. The Equity Release Council certificate signed by the solicitor is there to ensure clients are aware of the terms and implications of the plan including the impact of equity release on their estate.
6. All Equity Release Council plans carry a no negative equity guarantee. This means customers will never owe more than the value of their home and no debt will ever be left to the estate.
Home Reversion Plans
Home Reversion Plans work in quite a different way to that of a Lifetime Mortgage. Instead of a legal charge being placed on the home by the product provider, a proportion, or the whole of the property is actually sold to a Home Reversion provider. The individual can then remain in the property as a tenant until they go into Long Term Care or they pass away. Any remaining share would then be purchased by the reversion provider returning some money back to the individual or their estate if they have passed away.
It is important to note that this form of arrangement is not a mortgage or even a loan, but a property trade.
There are advantages and disadvantages to both the methods described above, however which one, if any, is right for you, depends entirely on your individual circumstances. No two clients are the same, and therefore no two pieces of advice are ever the same.
For more information on any aspects of Equity Release please contact us