Dipping in
Legal expert Graham Dorman explains how Home Equity Release could help loosen up the market.
T
here are many reasons for older people to explore the Equity Release route, clients not able to sell their homes or perhaps in two minds about selling but needing to free up equity may become
interested in the various schemes for Home Equity Release currently on the market some of which are currently well advertised. Such schemes have been around for a number of years although some earlier versions left much to be desired in terms of clarity and suitability. These schemes are aimed at the more
mature homeowner (although some are obtainable at age 55) and it is imperative that the homeowner obtains proper advice from an IFA before entering into such an arrangement. I strongly recommend that anyone interested in such a scheme access the information provided by SHIP (Safe Home Income Plans) by visiting their website at
www.ship-ltd.org. Although the schemes differ in many
ways the overriding principle is that the homeowner borrows a part of the value of their home in return for a share of the proceeds of sale of the property on the death of the homeowner. The equity release can provide either a lump sum
54 AUGUST 2011 PROPERTYdrum
payment or a regular income – achieved by reinvestment of the loan money – or a combination. Any money obtained is tax free although there may be tax to pay on any income generated from reinvestment. The attraction is that the homeowner
can remain in their home as long as they wish with no repayments of capital to be made to the lender which will realise it’s investment only when the property is sold following the death of the homeowner. The schemes are particularly attractive to childless homeowners who need not consider the next generation but they are also beneficial where children are involved as the lump some payment can be used to provide a house deposit for a child or university fees for a grandchild – it is their money to deal with as they please. Most schemes do allow the homeowner to move home and to take the scheme with them rather than repaying the loan. Four main products are available:
HOME REVERSION PLANS Under this scheme the homeowner sells a share of their home to a lender for a lump sum and/or an income. When the homeowner dies the lender receives its share together with the capital appreciation attaching to that share since the date the
loan was made. Thus if you sold a 50 per cent share at the outset then the lender will receive 50 per cent of the proceeds of sale. There is nothing to pay the lender during the homeowner’s lifetime. The homeowner continues to benefit from capital appreciation of the retained 50 per cent. Remember that the valuation upon
which the loan is based is not the market value of the home but a discounted rate because the lender may have to wait years for a return on its investment. This scheme is not suited to the younger homeowner (in their 60s) because of the large valuation discount which will be applied.
LIFETIME MORTGAGES Here the homeowner will receive a lump sum by way of mortgage, but will not make any payments of interest or repayments of capital during his or her lifetime. The interest is ‘rolled-up’ and added to the capital element of the loan. Again, the loan is only repayable in the event of the death of the homeowner or possibly when he or she needs to go into long term care. As with the Home Reversion Plan, the loan money can be used for any purpose but the big difference is that the homeowner retains all of the capital growth in the value of their home.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70