What’s All The Fuss About Equity Release?

The financial press these days is awash with articles written on the subject of equity release. These include the pros & cons on the subject & generally the negative & not the positive aspects of these plans. Having vast experience in the field of equity release, hopefully this passage will allay many of those doubts. Firstly, we start with the origins of equity release: - Equity Release Schemes have been available since 1965, when the first schemes were income based plans provided by an annuity & funded with a mortgage. Popularity for equity release blossomed, but unsafe & complicated schemes which included investment bonds and plans with variable interest rates started to appear in 1988. Many elderly people suffered financial difficulties as a result & these early equity release schemes were withdrawn in 1990. We could probably look to this point as where the industry received the tarnished reputation. Hence this initial equity release stigma remained until the recent regulation of the market. Regulation started in 1991, with the launch of SHIP (Safe Home Income Plans). SHIP was designed to promote safe equity release schemes & to protect customers with a specific code of conduct. Finally in 2004, the lifetime mortgage market became regulated by the Financial Services Authority (FSA) with Home Reversion Schemes following similar scrutiny in 2007. More than £946m in equity release lending was arranged in the UK during 2009 and this figure is expected to rise significantly over the next few years. So why are so many people taking out equity release? The answer to this partly lies in the return of the ‘confidence factor’. Consumer awareness in personal finance is becoming more evident & with the regulation of the equity release market, this has eased people’s fears. Additionally, development by the equity release providers has taken the market forward. The advent of drawdown equity release schemes in 2005 took a big step forward. This enabled people to take their tax free cash in smaller amounts, as & when required, rather than one big lump sum at the outset. Drawdown ensured that less interest would be paid over the longer term, as interest is only charged on the money that has been released. This was good news for not only the plan holders, but also ultimately for their beneficiaries! More recent developments in the market have been the introduction of interest only equity release schemes. It was noted that demand for the ‘anti’ roll-up effect of traditional equity release was required. Interest only equity release still offered the benefits of a lifetime mortgage approach. This included a fixed rate for life & even the option to switch over to roll-up at a later date, should circumstances dictate. The main feature of interest select was that the interest element could be repaid monthly, thus maintaining exactly the same balance from start to finish. This is in contrast to the roll-up equity release schemes whose balance roughly doubles every 10-11 years. How can equity release help? The aforementioned factors, coupled with flexibility & lower interest rates, have made equity release a more attractive proposition. Nevertheless, experience has shown that retired people’s attitude also has an important part to play. Gone seem to be the days when the over 55’s stayed indoors. The ‘silver surfer’ populace seems to embrace change more than ever & venture out into previously uncharted territory. IT (information technology) has the highest growth rate with the over 60’s venturing into the world of the internet. Whether it’s booking holidays, online shopping or ‘go comparing’ house & car insurance the silver surfers have no abounds. But this all comes at a cost; leisure pursuits, grandchildren, quality of life & the upkeep of their property all continue well into retirement. Equity release can be considered, once all other options have been eliminated. These can include downsizing to release tax cash, using your savings, claiming entitlement to any benefits, asking relatives for some financial assistance or even taking on a lodger! Once these options have been dismissed, then equity release can be considered as a solution.