Income from your home: Equity Release schemes

Equity release:  Holy Grail or damaged goods?

Equity release is a way of creating an income from your home without moving or taking in lodgers. You can take a lump sum or a regular income and you don’t need to repay any of the money until after you die.

These schemes have come a long way over the last 20 years, yet many people are still put off by the horror stories from the 80s and 90s. This is understandable.  Some of the early equity release products did leave customers exposed and, for a number of people who used these products, equity release became their worst nightmare.

Fortunately, today’s products are far removed from the early equity release schemes. This is particularly true if you choose a plan from a company that is a member of the trade body, Safe Home Income Plans (SHIP). To become a member of SHIP companies must agree that their products meet certain minimum standards to protect customers.

Some of the features of today’s products are:

  • No negative equity.  This means that, whatever happens, you can never owe more than the value of your home.
  • You can’t be thrown out of your own home.  You are guaranteed that you can stay in your home for life as long as it remains your main residence.
  • Portability. If you don’t want to be forced to stay in your present home for the rest of your life you can choose a plan that gives you the right to move in the future.

There are many well known companies that now provide these products. Some of the newer entrants have also introduced innovation into this market. Currently, there are two main products:

  • Lifetime mortgage.  This is basically a loan that you don’t repay until you die (or move home).  You continue to own your home (though you will have to repay the loan and the interest on it when you die or move).
  • Home reversion.  These plans mean you effectively sell part of your home to a company who will give you the sale proceeds either as a lump sum or an income.

Note: Think carefully before making any decision. If you are at all unsure about whether an equity release transaction is right for you, you should ask your adviser to make a recommendation.