How does equity release work?

 

By Andrew Davidson

The importance accorded to land ownership has been described by historians as a peculiarly English habit. Property ownership is seen as something to aspire to, not just to own a home, but to prudently invest one’s resources in something solid.

Asset rich – Cash poor

This fascination with property has inexorably led to a rise in house prices over the last few decades. A house that was worth just £70,000 in the late nineteen eighties could easily be worth a quarter of a million today, and a house that was worth a quarter of a million in the eighties could today be worth a real fortune.

It can seem strange that so much of a person’s money can be tied up in a property; to be asset-rich but cash poor is becoming a common occurrence. In tough financial times such as these, it is not uncommon for clients to want to access some of their stored wealth. For many, the mechanism they have in mind is ‘equity release’.

Which scheme to choose

Ordinarily, this is a scheme in which an equity release company will agree to loan the client a proportion of the value of their house, on the understanding that when the client dies the company will recoup the loan, with interest, from the estate. Alternatively, in a home reversion equity release plan, the house is sold to the equity release company which will allow the client to continue living there for their rest of their life.

The client will receive a percentage of the value of the property based on various factors, including age and life expectancy. To be eligible for equity release you generally need to be at least 55, and the older you are, the more you are likely to receive.

Legal implications

Although it can be tempting to plunge straight ahead with a slickly advertised equity release scheme, you should always keep in mind that when dealing with large sums of money – hundreds of thousands if not millions – there will be serious legal implications. If a client tells me they are interested in equity release I will always put them in touch with a good property and estate planning solicitor; someone who can really advise them on the long term implications of their plan.

Contact Law works with solicitors who specialise in helping people through the process of equity release. To speak to an advisor, call us on 0800 1777 162 or fill in our web form above.

Andrew Davidson is one of Contact Law’s most knowledgeable case handlers with extensive experience in this matter from dealing with clients on a day-to-day basis.

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