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Equity release is a way for a person to raise money against the value of their home, typically with no regular repayments (the lender is paid back when the property is sold). There are currently three main types of equity release plans on the UK market, known as lifetime mortgage, home reversion plans and drawdown lifetime mortgages.
There are three main equity release schemes on the UK market, all which come with their own benefits and drawbacks.
A lifetime mortgage allows you to release a tax free cash lump sum against your property to spend as and how you wish, with typcially no monthly repayments to make. You are able to stay in your home until you and your partner pass away or move into long term care. The loan, plus all interest that accrues on the loan is repaid in full when you and your partner pass away or move into long term care.
A drawdown lifetime mortgage works in a very similar way to a lifetime mortgage, except this time you are able to drawdown the cash in stages as and when you need it. Drawdown lifetime mortgages are becoming the most popular equity release scheme, and accounted 71.5 per cent of new business in the third quarter of 2011 compared with 26 per cent for lifetime mortgages and 2.5 per cent for home reversion plans.[1]
A home reversion plan allows you to sell all our part of your home in exchange for a cash lump sum, which is yours to spend as and how you wish. Again, there are typcially no monthly repayments to make with the loan, plus all interest accrued paid in full when you and your partner pass away or move into long term care. A home reversion plan allows you to protect a percentage share of your property which allows you to guarantee an inheritance to your loved ones.
Enhanced lifetime mortgages are another variation of a lifetime mortgages, but could see you release more cash as it is based upon your health and lifestyle conditions. Equity release provider, more 2 life say that 60 per cent of customers are qualifying for the highest level of enhanced LTVs ranging from 34% at age 65 to 44% at age 75 as brokers focus on health issues in their equity release fact find.[2]
It is important to note that all equity release plans will reduce the value of your estate and may affect your entitlement to state benefits. An equity release adviser will be able to explain this to you in more detail.
Equity release has received a lot of negative press in the past, which has led many people to think of the whole process as a financial product they should steer clear from. While it is important that you should seek expert advice, it is important to note that the equity release industry has grown considerably over the years with extra safeguards put in place to ensure that customers are fully protected when taking out an equity release plan.
SHIP was launched in 1991 in direct response to the growing need for consumer protection. SHIP represents the majority of the equity release market in terms of volume and its members include the leading providers of lifetime mortgages and home reversion plans.
SHIP-approved plans guarantee that you:
The UK equity release market consists of three different types of equity release schemes all which come with their own benefits and drawbacks. For this reason, it is important that home owners seek independent equity release advice to ensure they are choosing the right plan to suit their needs and requirements. The UK equity release market is now fully regulated. Both lifetime mortgages and home reversion plans now fall under the remit of the Financial Services Authority (FSA). Prior to FSA regulation, many lenders signed up to SHIP, a voluntary code of conduct that provides a number of guarantees. SHIP ('Safe Home Income Plans') was formed in 1991 in an attempt to improve the equity release market and its previous poor reputation. The SHIP guarantees include a guaranteed right to remain living in the property, which is the subject of the equity release, either for life or until entry into long term care. In addition there is a vital No Negative Equity Guarantee - which essentially guarantees that the amount to repay the equity release plan on death or entry into long term care can never exceed the value of the property itself, and so no debt can ever be left behind for beneficiaries of the equity release borrower. The current members of SHIP include Aviva, More 2 Life, Hodge Equity Release, Bridgewater, Stonehaven, New Life, Just Retirement, LV= and Godiva. Whilst a number of equity release providers, most notably Prudential, exited the market in the wake of the Credit Crunch, this trend has been reversed since the end of 2010, with a number of companies - including More 2 Life, New Life and Stonehaven - growing their services in the equity release market to help people release cash from their homes safely.
There are also equity release brokers on the UK market, which compare the different equity release plans on the UK market for you in order to find the best plan to suit your needs and requirements.
The main equity release brokers include:
Intemediaries accounted for 78 per cent of new business in 2010,[3] with Key Retirement Solutions completing almost one in four equity release plans across the whole equity release market. Advertising private firms inside Wikipedia is considered unethical by the majority of marketing and public relations companies.