Equity release: a good way to securely face the future

For many, the prospect of retirement can be daunting. What is supposed to be a time for relaxation post-employment, can often be overshadowed with the anxiety of facing a significant drop in income, coupled with increasingly high living costs.

And, with prices for essentials like food and electricity rising, alongside higher interest rates and often small pensions, many have to consider alternative options for living after retirement. This can mean downsizing, or, if practical, finding another job.

However, the financial experts believe this doesn’t have to be the case. It is thought many are not aware of the current value of their properties, and, due to increasing house prices over the past few decades, there are a lot of people who own homes worth significantly more than when they were purchased. This is where the concept of equity release can play an important role in easing the stresses of facing a future with limited income.

Equity release – a way of releasing funds which are tied up in a property – has become a popular method to boost ones’ retirement income and is generally available to those aged 55-70, dependent upon circumstances. In the current marketplace there are four schemes available: lifetime mortgages; drawdown plans; home reversion plans; and home income plans.

With a lifetime mortgage, it is possible to obtain a tax-free cash lump sum or a regular monetary income. The loan is secured against the property and interest is accrued throughout one’s lifetime. The loan is paid back once the borrower has died or gone into long-term care and the property is sold.

A drawdown plan is similar to the lifetime mortgage, but instead of receiving a lump sum or regular payments, one decides upon a maximum amount of equity they wish to secure, which is then available for them to ‘drawdown’ when necessary.

Alternatively, with a home reversion plan, the borrower sells all or part of their home to a reversion plan company. In exchange, the borrower receives a tax-free cash lump sum with no monthly repayments and is able to stay in their home for as long as necessary. Additionally, the borrower is able to guarantee an inheritance to any beneficiaries, which is not possible under the lifetime mortgage scheme.

With a home income plan, equity is released through either a lifetime mortgage, or a home reversion plan. However, instead of receiving cash immediately, it is invested into an annuity, which is designed to generate income for life.

There are a lot of advantages in taking out an equity release scheme. However, when thinking about any form of equity release, it is advisable to seek the advice of independent financial experts, and to consider schemes regulated by the Financial Services Authority and SHIP – the self-regulatory trade body for the equity release market.

Paul McIndoe writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.