Ask the Experts - Equity Release

Q.         We are in our 60s and considering equity release as one of our options. Would you consider this a good option?

A.         It is reported that more and more people are turning to equity release, which means they’re effectively handing over a share in their property in return for a cash lump sum.

This can be viewed in two ways - either as an endorsement of an increasingly popular financial product that meets a particular need, or as a worrying reflection on the growing financial pressures being felt by predominantly older people, forced to borrow against their most valuable asset as a way to generate ready cash.

If you don’t have any family to worry about, then equity release may look like an attractive proposition. Why struggle, or even deprive yourself of that holiday of a lifetime, when all the time you are sitting on a goldmine? After all, you can’t take it with you!

However, like any ‘cash now, pay later’ proposition, equity release is an expensive way to borrow money. There are two main types: The lifetime mortgage is, as its name implies, a long term loan secured against your home – except that you don’t have to make any repayments. Instead, the interest is simply added to the loan, which consequently mounts up very quickly. Home reversion, meanwhile, basically involves selling a share of your property, so you and the provider become co-owners. The catch in this case is that the amount you receive up-front is based on your home’s current value, while the cost is based on its value at the end of the deal…

But cost isn’t the only issue. Effectively signing away a share in your home is not something to be done lightly. I would strongly urge anyone contemplating equity release to approach the subject very carefully, making sure they get professional and objective guidance from a suitably qualified financial advisor.

There are other options, which may better meet your needs, allow you to stay in control and work out much less costly in the long run. For example, downsizing - selling your house and buying somewhere smaller could release considerably more funds while leaving you with the security of being in full ownership of your new home.