business advice - Craft Focus Magazine

usiness advice
raising money on
your home – equity release
Last month we looked at budgeting for your retirement.
This month we look at some of the available schemes to
unlock some of your capital if on retirement you are going to
be ‘asset rich and cash poor’
The problem for many retired people is that
they are ‘asset rich, cash poor’, with most of
their money being tied up in their property. As
a result, many retired owner-occupiers struggle
to make ends meet on reduced incomes. One
way round the dilemma is to sell up and move
somewhere smaller in order to provide extra
income. For those who prefer to stay put,
however, there are schemes that enable people
to unlock capital without having to move.
Although house prices have fallen
considerably in recent years, they have begun
to rally a little and now might be a good time
to consider equity release. This is a way of
releasing money from the value of your home
without actually having to move. It comes in
two forms:
Either a type of mortgage where you pay
no interest on the loan until you die (a lifetime
mortgage); at this point the property is sold to
pay off the debt.
Or, you sell a proportion of the property
to a company to release a lump sum. This is
known as a home reversion scheme.
While each has its attractions, neither
scheme is without its drawbacks, so it
is essential to make sure that you fully
understand all the financial implications –
including how the plan may affect your estate
– before entering into any agreement.
A crucial point to check is that any plan you
are considering carries an absolute guarantee
of you being able to remain in your home for
as long as you need or want to do so. In the
past, many elderly people tragically lost their
homes as a result of ill-advised and dangerous
schemes. Today it is extremely unlikely that you
would be offered a high-risk plan, because in
October 2004 all lifetime mortgages and home
income plans came under the regulation of
the FSA. Where your home is concerned you
simply cannot afford to take any chances.
Since April 2007, reversion schemes have
also come under the regulation of the FSA.
The important thing with equity release is
to make sure your family knows all about your
plans. Since the loan, plus any interest, is paid
off when you have died, not letting your family
know about the equity release scheme could
mean they have a shock at a time when they
are least able to cope with it.
If you are interested in getting an equity
release product, you need to take advice. Make
sure you use one of the companies under
the Safe Home Income Plans (SHIP) scheme,
as these companies sign up to a charter
guaranteeing that you will not be forced to
leave your home at any stage, and the value
of the loan will never be more than what the
property is worth. For further information see
website: www.ship-ltd.org.
Home reversion schemes
A home reversion scheme is designed for
home owners who wish to release the
maximum amount of equity within their
property. Unlike an equity release lifetime
mortgage scheme, where you retain full
ownership of your property using a home
reversion plan, you sell some or all of your
property to the plan provider.
Home reversion schemes allow home
owners to release a lump sum from their
property; there is no interest and no concerns
over future house prices. The amount of equity
you can release under a home reversion plan
will depend on your age and the value of
your property.
With a home reversion scheme, you sell all
or part of your property to the plan provider.
It is the home reversion scheme provider that
takes the risk on future house prices. If you
sell 30 per cent of your property to the home
reversion plan provider, the home reversion
plan provider will be entitled to 30 per cent of
the sale price when your property is eventually
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