Equity release is a popular way of borrowing for folks over 55 looking to cash in on the huge growth in value of their homes.
It's a lifetime mortgage product that can provide a lump sum or regular payments in return for taking out a mortgage on a property, which does not have to be repaid until you die or sell your property.
However, it has attracted its fair share of controversy, with two major publishers squabbling over it in this week's press!
First, consumer magazine Which? issued a report titled “Care Options In Retirement”, warning against relying on equity release to make ends meet or to fund residential care for the elderly — saying it should be treated as a “last resort”.
However, the over-50s publisher Saga (which also provides financial services for retirees) has criticised Which's findings, saying that it's not a last resort and it gives people choice!
So who's right? (and why the argument in the first place?)
The answer to your retirement money problems?
According to Which?, some of the products are expensive, lack flexibility and leave you with little or no remaining equity in your home. They may also impact on your ability to receive benefits to which you would otherwise be entitled.
Philip Spiers, co-author of 'Care Options in Retirement' says:
“Equity release might seem like the solution for any pensioners struggling to make ends meet this winter. However, if your circumstances change you might not have enough money remaining to fund alternative accommodation, and money received through equity release may seriously alter the amount of benefits you are able to collect.”
“Anyone considering equity release should do so cautiously; and only after exhausting other options. In all cases, independent, professional advice should always be sought.”
Which? recommended that before turning to equity release, you first consider downsizing to a cheaper property, use existing savings, or even borrow from family who can be paid back when your property is eventually sold.
If you are struggling with finances, you should also check your eligibility for state benefits or grants to assist with the cost of living.
You can also get impartial Equity Release advice here — for yourself or for your parents.
Critical response
However there have been a number of critical responses to the Which? report.
First, Saga’s Business Development Manager Alex Edmans disagreed with the notion that equity release should only be considered as a last resort:
“Equity release gives consumers a choice. Most people would not want to be forced into the decision of having to move into a smaller property and equity release gives them the option and ability to remain in their own homes.”
“With recent improvements, equity release products on the market offer greater flexibility and better value than ever before. Indeed, equity release interest rates that are fixed for life currently compare very favourably against the standard variable mortgage rates on the market at present.”
“However, as Which? mentioned, equity release could reduce your entitlement to some state benefits. With this in mind, equity release is not right for everyone and that is why it's important to seek financial advice before arranging an equity release plan.”
Equity release schemes approved by the Safe Home Income Plan (SHIP) can be transferred to a new property. However, this does not always cover sheltered housing or retirement homes.
Andrea Rozario, director-general of SHIP, claimed that Which's report was "outdated", saying:
“It has not taken into consideration the market advancements of the past decade, let alone the last 12 months. Equity release products offer increasing flexibility. There are now products that offer the security of fixed-rates with little or no redemption penalties, and recently we have seen rates falling, in stark coontrast to the mainstream mortgage market.”
“This, coupled with safeguards offered by SHIP members and compared to normal mortgages, not only means that the products are safe, but also incredibly flexible.”
Are you looking to find more money to help you through retirement?
Are you planning to release equity from your home? Or do you think it’s simply a way to wipe out everything you’ve saved for over the years?
Why not let us know in the comments?
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