Equity release plans – the pros and cons

March 14, 2015 by Brendan O'Neill

Features

As a qualified financial professional who has passed the required exams, you are able to discuss and advise customers on the options they are eligible for, and that are available to them. It will be dependent on your employer (unless you are an independent advisor) as to whether or not you are able to discuss equity release products.

For those who are over the age of 55 and own a home, one route to take if a standard residential mortgage is not a viable option is and equity release plan. This route allows the borrower to release equity from their house in cash form – either as a lump sum, a monthly amount to top up their pension income, enabling them to maintain their standard of living, or both.

It is your job to ensure that they have fully considered the pros and cons of such borrowing, and understand that when entering an equity release agreement, it is meant as a lifelong commitment. Here are some points to consider:

Pros

• They allow the applicant to remain in their family home, with no need to downsize and leave behind built up memories

• They provide a cash lump sum to enable applicant to realise a long-standing dream they previously couldn’t afford , such as home improvements or a luxury holiday

• If taken in instalments, they can be drawn in monthly amounts to top up an existing monthly pension payment, enabling the applicant to maintain their standard of living

Cons

• As there is no set term, it is difficult to work out the overall cost and total amount repayable

• They can be flexible and can only be ended in certain circumstances

• Can be somewhat expensive

It very much depends on the customer and their individual requirements. Having assessed their needs and looked at their income and expenditure, a financial professional will be able to recommend whether an equity release is the best path to take, or whether it is worth looking at other options.

Other options may include:

• Obtaining an unsecured loan, depending on the amount, purpose and term required

• Selling the property, because by downsizing you can free up some cash tied up in the property value, and may be able to become mortgage free

• Applying to extend your current mortgage loan, and while this is more difficult now with the increased regulation applied to mortgage lending, dependent on the customer’s age, some lenders may agree to extend the term to reduce the payments