Money
Managing your money
Equity release schemes 'could drop in price'
Homeowners releasing equity from their homes to boost their income can expect plans to become cheaper, according to a new report
The study, by Safe Home Income Plans (SHIP) – which represents equity release providers – claims that 67 per cent predict interest rate reductions on equity release plans in the next three months will increase the popularity of these schemes.
More than 90 per cent of providers think that the volume of new business will increase in the next year, with the drop in costs being a strong driver.
The over 50s currently hold an estimated 80 per cent of the UK's overall wealth, much of it tied up in property. Equity release plans allow you to access some of the cash locked up in your home.
The SHIP study says consumers are likely to favour drawdown plans, claiming these will account for 70 per cent of the market by 2010.
Drawdown is often chosen to take advantage of more flexible features. While you can access a set amount of cash, you do not have to take it all at once – which is appealing to more cautious people and also reduces the overall cost.
"More people are considering equity release because of the cost in utilities, council taxes and general day to day expenditure," said independent financial adviser Jason Hemmings. "It is also becoming increasing popular to help out younger family members who are struggling financially during the economic downturn."
Hemmings said he expects this to continue to increase as the full extent of the recession hits home and there are more job losses. And more people are considering equity release to help meet their income requirements, especially in the light of the dramatic reduction of investment income and interest rates in recent months.
SHIP director general Andrea Rozario said that the biggest issues facing 2009's equity release market are predicted to be falling house prices and a lack of consumer understanding of equity release products. Furthermore, it is essential that anyone thinking about taking up an equity release plan should take professional advice from a qualified adviser.
Professionals quite rightly maintain that taking out a plan is a big step which you need to get right while, crucially, understanding all the charges. It is not something people should jump into without knowing all the facts. And falling property values could mean very little inheritance for families in the future. It is a long-term commitment and while interest rates are low at the moment, that may not always be the case.
Alex Edmans, business development manager for Saga's Equity Release Service said: "The prediction from SHIP that equity release interest rates will fall in 2009 is very good news for consumers. Many perceive equity release to be expensive, but in fact rates are favourable when compared to standard fixed rate mortgages, they also offer the flexibility to drawdown funds only when required which helps to keep costs to a minimum.
"Those living in retirement on their savings or on a fixed income will be finding things very tight at the moment. However it is likely that they are sitting on thousands of pounds worth of equity in their properties and, as interest rates on these plans are predicted to fall, perhaps now is the time to consider releasing some of those funds in order to help meet ongoing commitments or maybe to fund required home renovations."
* Written by Holly Thomas, an award-winning financial journalist and Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice. This article was published on January 14, 2009.
