Money
Retirement
A guide to equity release - part one
Equity Release is an increasingly popular way to boost the income of older homeowners who find that their income in retirement does not stretch far enough. It lets them exploit the value of what is probably their most valuable financial asset - their home - without having to sell up and move out, writes Jennifer Bailey
1. THE PERFECT SOLUTION? The products on sale today are a far cry from the controversial old home income plans sold in the late 1980s which proved disastrous for many people. High interest rates coupled with the property crash left many investors owing more than the value of their house. Being in “negative equity” meant they faced the prospect of being forced to sell their home to repay their debt.
The trade body Safe Home Income Plans - or SHIP for short - was set up in 1991 to try and restore trust in equity release. All plans sold by members of SHIP come with a number of important safeguards, including a guarantee against negative equity. According to SHIP, more than £1.4 billion was released through equity release products last year, and the market is predicted to grow to almost £2.5 billion by 2008.
In addition to the voluntary standards imposed by SHIP, the Financial Services Authority regulates one type of equity release product - lifetime mortgages - and will regulate the other kind, known as home reversion, from April 2007.
Such formal regulation provides consumers with two significant safety nets. If they have a complaint against a company which sold them an equity release scheme, that is not resolved to their satisfaction, they can ultimately take their dispute to the independent and free Financial Ombudsman Service. And if the firm in question has gone out of business the Financial Services Compensation Scheme may be able to help.
But before getting carried away, it is important to be clear that when it comes to financial products, there is no such thing as a free lunch and this is no exception.
Make no mistake. Equity release may seem like an ideal solution for your circumstances, but it is not painless. It can be an expensive way to borrow, and remember, any money you raise involves either selling or mortgaging part of your home. As will be shown below, you should also consider the impact on any benefits you currently receive, and on the inheritance you hope to leave to family and friends.
2. LOOK BEFORE YOU LEAP Equity release should not be your first choice. In fact you should only consider going down this route once you have given serious thought to the alternatives.
The most obvious way to benefit from the value of your house is to downsize - sell your existing property and move to cheaper one. You would of course have to pay the normal costs of moving, but you should end up with a lump sum which you could either then simply spend, or to invest to provide an income.
But if, like most people, you simply are not prepared to sell up and leave your home, there are other options to explore.
BENEFITS CHECK-UP One of the first things you should do is check whether you are receiving all the benefits that you can. If your weekly income in retirement is less than £119 for a single person or £181 for a couple, depending on the amount of savings you have, you may be eligible for Pension Credit which would bring your income up to that level. You may still be entitled to some benefit even if your income is above those limits.
Similarly if you don’t qualify for Pension Credit, you may still be able to get some help with your council tax bill.
Contact The Pension Service or your local Citizens Advice for more information or the free advice line run by Help the Aged.
If you think you may have lost track of a work-based or private pension, the Government’s free Pension Tracing Service can try and find it for you.
HOME HELP If you would like to release money to pay for specific home repairs, large or small, you may be able to get a grant or loan from your local authority. The type of help you can get will depend on whether you live in England, Wales, Scotland or Northern Ireland, and on your individual financial circumstances. For more information contact your local council or Citizens Advice.
If you need to adapt your home because of a disability, you may be entitled to extra support such as a disabled facilities grant. Again, contact the housing department of your local council.
Another potential source of help is your local home improvement agency. These have different names in England, Wales, Northern Ireland and Scotland but in each case offer independent advice and assistance to help homeowners repair, improve or adapt their homes.
You may also be able to get help with improving your insulation and other heating improvements from Warm Front (Warm Deal in Scotland, “HEES” in Wales and Warm Homes in Northern Ireland). If you are worried about paying your energy bills, the Home Heat Helpline on 0800 33 66 99 is a free, central telephone service offering practical energy advice and support.
In addition to the regional home improvement agencies, a not-for-profit organisation called the Home Improvement Trust operates through England, Scotland and Wales. Its “Houseproud” scheme is open to all
homeowners aged 60 and over, or any household which includes a disabled person. The Trust can provide practical advice about repairs, improvements and adaptations, identifying reliable tradespeople, checking the work and, if necessary, arranging loans to cover the cost.
LINKS: Saga Equity Release Service - www.saga.co.uk/finance/spf/home_equityrelease.asp The Pensions Service - 0845 60 60 265 - www.thepensionservice.gov.uk The Pensions Service Tracing Service - 0845 6002 537 www.thepensionservice.gov.uk/atoz/atozdetailed/pensiontracing.asp Entitled to - www.entitledto.co.uk Citizens Advice - www.adviceguide.org.uk Counsel and Care - 0845 300 7585 - www.counselandcare.org.uk Elderly Accommodation Counsel Housing Care - 020 7820 1343 - www.housingcare.org Help the Aged Seniorline - 0808 800 6565 - www.helptheaged.org.uk Warm Front - 0800 316 6011 www.warmzones.co.uk/where_to_get_help.html#warm_front Home Heat Helpline - 0800 33 66 99 - www.homeheathelpline.org
PAUSE FOR BREATH Even if, having considered the above options, you are convinced that equity release is the right avenue for you, take a moment to pause. These products are designed for people who are at least 55, but in fact the older you are when you take them out, the better value they are. Patience is a virtue here.
Home Improvement Agencies: England: 01457 891909 - www.foundations.uk.com Scotland: 0141 221 9879 - www.careandrepairscotland.co.uk Wales: 029 20576 286 - www.careandrepair.org.uk Northern Ireland: 028 90428314 - www.foldgroup.co.uk Home Improvement Trust - 0800 783 7569 - www.houseproud.org.uk
