Are Home Equity Release Schemes a Good Idea?

Lost Inheritance Property vs. Retirement Income

State benefits may top up retirement income, but this is rarely sufficient. Home equity release schemes have grown in popularity as a means of boosting income.

Home equity release schemes are known by a number of names, including home income plans, lifetime mortgages and home reversion plans. Think of them as a mortgage in reverse. The lender gives the owner a monthly retirement income, cash lump sum or both in return for a pre-determined share of the property.

What are Home Equity Release Schemes?

Home equity release schemes are a means of releasing money locked up in the family home. It is estimated that in excess of 50% of over-65s' wealth is tied up in property. Equity release is considered an excellent way to boost retirement income.

A home equity release scheme allows the person to stay in their own home for the remainder of their life or until they go into a care home. Many schemes even permit a house move, although the T&Cs vary heavily between schemes.

Equity Release vs. Home Reversion Plans

Home reversion plans are slightly different to equity release schemes, although the underlying premise is identical. The main feature of home reversion plans is that they provide a lump sum payment rather than a monthly income. It is possible to get a combined plan that encompasses both a retirement income and a lump sum payment.

Seniors seeking a cash lump sum may wish to consider asell and rent back scheme. This involves selling to a private company and renting it from them. A further solution involves selling up, buying a smaller house and investing the difference in a form oftax-free savingsto provide a retirement income.

Lost Inheritance Property

Equity release may boost retirement income, but this comes at a price. Compound interest quickly erodes the value of a property meaning that the property forms only a reduced percentage of someone's estate. Lost inheritance property can constitute a genuine problem for those that have children.

However, recent home equity release schemes have started to address this genuine concern. It is now possible to release a fixed percentage of the equity in a home so that some of the value of the property can be left in a will. This is called a drawdown lifetime mortgage.

Lost Eligibility for State Benefits, Including Pension Credits

According to Age Concern, a third of over-65s receive pension credits. Pension credits are a means-tested benefit and an additional income from a home equity release scheme may remove a person's entitlement to them. Always get a full benefits entitlement check-up performed before signing up to any home reversion plan.

Before proceeding with a home equity release scheme it is imperative that a senior understands precisely what is involved. It may affect access to state benefits and will definitely affect inheritance. Always talk to family members and explore all other options before signing up to an equity release plan.

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