business advice - Craft Focus Magazine

aising money on
your home – equity release
sold. If you sell 100 per cent of your property
to the home reversion scheme provider, the
home reversion plan provider will be entitled
to 100 per cent of the sale price when your
property is eventually sold. You will not be
charged any rent, but you will be responsible
for maintaining the property and paying for any
repairs that are required.
Usually the set-up costs are fairly low.
However, the downside is that the money you
receive from the sale will be substantially less
than the current market value of your home.
The price paid will refl ect the fact that it could
be a great many years before the reversion
company can realize its investment. The longer
you live, the more value you will get from the
scheme. If your life expectancy is not that great,
a particular point to query is whether there
are any benefi t guarantees in the event of
early death.
Lifetime mortgages
A lifetime mortgage is the other type of
equity release scheme (sometimes known as
‘roll-up loans’). With a lifetime mortgage you
continue to own your home and any growth
in that property value is yours. Unlike a normal
mortgage the interest is added to the amount
you have borrowed therefore the debt rises
over time. It is this roll-up of interest that
makes a lifetime mortgage attractive to retired
people, as there are no monthly repayments
to make.
There are now options available where
some or all of the interest can be paid, thus
providing more choice. Some schemes have
a drawdown facility where you take just the
amount you need now and have the facility
to draw down further sums from your
lifetime mortgage over the following years.
This can mean signifi cant savings in interest.
If you want the option to repay your lifetime
mortgage you can. If you want to ‘ring-fence’
some of your property’s value to guarantee an
inheritance, you can.
While attractive in that clients can spend
the money safe in the knowledge that they
will not have to make any repayments, the
disadvantage is that compound interest can
very quickly mount up, leaving little or nothing
for their heirs to inherit. To reduce the risk,
particular points to check are, fi rst, that the
interest is fi xed rather than variable and,
even more important, that the plan includes
a guarantee that there is no danger to your
estate of negative equity. Lifetime mortgages
are offered by SHIP members, listed below.
Home income plans
Home income plans work on the basis of
a mortgage arrangement whereby the loan
is used to purchase an annuity to provide
a guaranteed income for life. The mortgage
interest is fi xed and is deducted from the
annuity payment before you receive your
share. While popular at one time, such plans
have largely fallen out of favour owing to
the abolition of mortgage interest relief and
worsening annuity rates. Few people would
derive much value and they should really
be considered only by those well into their
mid-80s.
Final thoughts
Cashing in on the value of your home while
continuing to live there for the remainder of
your life has attractive advantages, especially if
the priority is to generate additional income
or to provide you with a lump sum. However,
expert advice is essential and you should also
consult an independent fi nancial adviser (IFA)
with expertise in equity release schemes.
A welcome safeguard is that the Financial
Services Authority, which regulates lifetime
mortgages, extended its powers to include
home reversion schemes from April 2007. C
Reader Offer –
Craft Focus readers can buy The Good non-
Retirement Guide 2011 at a special 15%
discount (thus £16.15).
To order call +44 (0) 1903 828503 quoting
FK0411. Closing date 8 July 2011.
Contacts for information on the
various schemes
For further information on home reversion
schemes, see websites:
www.homereversionschemes.co.uk,
www.ship-ltd.org or
www.sixtyplusonline.co.uk. There is also an
FSA fact sheet on equity release schemes
available from www.fsa.gov.uk. SHIP
members are:
Aviva Equity Release UK T: + 44(0) 845
302 0111, www.aviva.co.uk
Bridgewater Equity Release,
T: + 44 (0) 845 140 5060,
www.bridgewaterequityrelease.co.uk
Hodge Lifetime, T: +44 (0) 800 731 4076,
www.hodgelifetime.com
Home & Capital, T: +44 (0) 1234 321 091,
www.homeandcapital.co.uk
Just Retirement Limited, T: +44 (0) 1737
233 296, www.justretirement.com
LV=, T: +44 (0) 870 609 0616,
www.lv.com
More 2 Life, T: +44 (0) 8454 150 150,
www.more2life.co.uk
New Life Mortgages Ltd, T: +44 (0)121
712 3800, www.newlifemortgages.co.uk
Stonehaven, T: +44 (0) 800 068 0212,
www.stonehaven-uk.com
Further information
Our advice on Equity Release is from The
Good non-Retirement Guide 2011 from
publishers Kogan Page, rrp £18.99 (ISBN
978-0-7494-6244-4). It is packed with the
latest information on all sorts of matters
relating to life after work and hundreds of
useful contact numbers and
websites making it essential
reading for all those looking
forward to making the best
of their retirement. For
more information
visit the website:
www.koganpage.com.
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