Equity release

 

Equity release is a concept which is particularly prevalent in those who have retired or who are near their retirement age.

If you are thinking of retiring or have already retired, and are looking at ways to boost your income or receive a lump-sum payment, then the process of equity release is one which you may be considering.

However, given that perhaps the most important asset that you may have, your home, is involved, you should obtain expert legal advice to ensure that you are choosing the right equity release scheme.

How does equity release work?

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
  • 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. There are many advantages of equity release. You can pay off any outstanding debts, take a well-deserved holiday or perhaps make improvements to your property.

Legal implications

There are certain guidelines and regulations in place and the schemes are governed by the Financial Services Authority. If these rules are broken or in any way not adhered to, the Financial Ombudsman Scheme will help redress the situation.

However, certain individuals who are involved in equity release finance are not governed by the Financial Services Authority, and you should ensure that you check that whoever is providing you with advice or whoever is in charge of the scheme is correctly regulated to ensure that you have the protection necessary when involved in such a large transaction.

Further to being regulated by the Financial Services Authority (FSA), there is a code of conduct which is voluntary and is in place to provide protection for consumers. This is known as SHIP (Safe Home Income Plans).

Companies providing equity release usually adhere to SHIP, and there are certain codes in place to protect consumers.

Whichever process you think is suitable for your needs, you must ensure that you seek specialist advice, as otherwise you may find yourself in more debt. Remember, if you go ahead with equity release the company involved will be looking to make money from you and your assets.

You should also be aware of any reductions in your estate, and will need someone who is familiar with the complexities of the law in the area to guide you through the often convoluted process.

Want to know more? See our page on equity release solicitors.

If you are considering equity release, Contact Law can put you in touch with a local specialist property solicitor who has extensive knowledge in equity release and financial advice. Please call us on 0800 1777 162 or complete the web-form above.

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