Equity Release Schemes are designed to assist people over 55 to achieve their goals in retirement. This could be for a variety of purposes with one common goal; a happy retirement which enables you to retire, relax and enjoy the longest holiday of your life.
An equity release mortgage is a financial vehicle that enables you to take a release of equity from your property. The tax-free cash withdrawn can be utilised for any purpose and be taken as a lump sum, ad-hoc withdrawals or as income to supplement retirement annuities or pensions.
Following the release of equity, the plans then run for the rest of your life, hence the lifetime mortgage tag. During this period, there are two options on how to manage the balance: –
- Roll-up Interest – where NO monthly payments are made and the interest therefore compounds monthly, or annually. As a consequence of no repayments the balance will increase thereafter and carry on doing so until the plan is terminated.
- Interest Only – here the mortgagor has the option of making repayments of interest, and in some cases even capital can be repaid. The effect of making some form of repayment will be that the balance can be controlled and managed. By keeping the balance under check will have a two-fold benefit; reward themselves in protecting the equity in the property and secondly to protect the equity for the benefit of the heirs to their estate.
Equity release schemes are terminated upon the death or moving into care of the last party to the mortgage. At that point the beneficiaries usually have 12 months in which to sell the property & repay the equity release provider. Any balance remaining over and above the repaid equity release is for the executors to distribute in accordance with the last will & testament of the property owners.
Before any decision is made as to whether releasing equity is best advice, it should be discussed with those closest to them. For this reason EquityReleaseCalculator.net feel this is key to the equity release decision-making process and we recommend that the final decision be made with children or siblings.
Due to the complexity of equity release schemes available to the over 55’s, we have identified the most popular schemes as follows: –
- Home Reversion – a plan where equity can be released by selling all. or part of one’s home
- Lifetime Mortgage– the most popular equity release, encompassing the following formats:-
- Roll-up Lifetime Mortgage – a lifetime mortgage with no monthly payments
- Interest Only Lifetime Mortgage – protecting your inheritance by making repayments
- Drawdown Equity Release – a flexible plan where cash is taken as ad-hoc payments
- Enhanced Lifetime Mortgage – provide a maximum lump sum by checking one’s health
All these types of equity release schemes are explained further by clicking here
Equity release schemes have strived to become a mainstream retirement product. Enduring a history of tarnished reputation, the equity release market has come a long way in providing peace of mind to a new generation of consumers with ever demanding needs.
Consumer protection has become a key element in growing the confidence of the over 55’s in recognising how equity release can enhance their retirement plans.
The first steps towards regulation
The process of regulation started in 2004, when lifetime mortgage schemes became regulated by the Financial Conduct Authority (formerly FSA). Complete regulation of the equity release marketplace did not follow until 2007 when home reversion schemes following suit. Regulation has resulted in protection for the consumer in the sense that should a future complaint arise then redress can be found in the shape of the Financial Ombudsman.
The Equity Release Council was formed from the previous equity release trade body – SHIP (Safe Home Income Plans) which was formed in 1991. Ship was launched to provide extra security by enforcing a code of conduct on providers to conform to set of standards: –
- No negative equity guarantee – the equity release mortgage can never be more than the value of the property at any stage. This ensures no debts are passed onto beneficiaries.
- Independent solicitor – the legal work must be carried out by a solicitor that is independent to that of the equity release providers.
- Lifetime tenancy – all lenders must provide a lifetime tenancy agreement ensuring occupancy is guaranteed for life.
- Portability – should downsizing or moving home be necessary, then all lenders must offer the chance to switch the equity release to the new property, subject to criteria.
However, in 2012 SHIP was renamed the Equity Release Council as the new trade body to promote the virtues of equity release schemes further than SHIP was able to. Whereas SHIP only opened membership to the equity release providers themselves, the Equity Release Council, currently fronted by Nigel Waterson has opened membership also to equity release advisers, solicitors & connected trade associations.
The Equity Release Council now provide a register of advisers who are members of the Council. By sourcing the register will help to find a local equity release adviser near you.
Part of tightening the regulation on the equity release industry also involved making equity release advisers become fully qualified and hold certified equity release examinations. Two examination bodies have been formed – CII (Chartered Insurance Institute) & the IFS (institute of Financial Services) who provide the licensing towards the following lifetime mortgage qualifications:-
- Certificate in Regulated Equity Release (CeRER)
- Certificate in Mortgage Advice and Practice (CeMAP)
- CF1, CF6 and ER1
The FCA provide a register of advisers & firms that are regulated.
Equity Release Solicitors
Solicitors are the final link in the whole consumer protection chain. They also have guidelines to follow as part of the Equity Release Council guidelines. One of those is they must be independent of the lifetime mortgage lenders solicitor. Even within the legal profession a solicitors trade body has been set up to promote firms that aim to provide experience, speed & quality of service. This trade body is the Equity Release Solicitors Alliance (ERSA).
The following legal practices are currently members of ERSA: –
- Ashfords Solicitors
- Birchall Blackburn Solicitors
- Blacks Solicitors
- Goldsmith Williams
- Caesar Howie Solicitors
- Gordon Brown Law Firm LLP
EquityReleaseCalculator.net can access fixed priced arrangements with ERSA solicitors, thus please contact us for further details on these offers.
Releasing equity from your property is a big decision and therefore you should not make that decision alone. Therefore, EquityReleaseCalculator.net would always recommend anyone to take independent equity release advice after speaking to your family.
Further information on equity release schemes: –
These are lifetime mortgage & home reversion plans. To understand the features & risk ask for a personalised quotation.