Types of equity release
There are three FSA regulated ways of releasing equity from your property:
>Standard Home Reversion Plans
Retirement Plus Home Reversion Plans
Lifetime Mortgages
Here we look at the pros and cons of the standard home reversion plans. For peace of mind, choose a SHIP member provider for your equity release needs. To understand the features and risks of any equity release scheme, ask your financial adviser for a personalised illustration.
Standard home reversion plans
You sell your home or a share of it to a reversion company for a lump sum or in return for a monthly income (or a combination of both). Technically you become a tenant, albeit with the right to continue living in your home rent-free (or sometimes for a small, peppercorn rent – say £10.00 per year) for the rest of your life.When the property is sold – usually when you die – the reversion company gets its payout. If, for example, you sold 50% of your property to the reversion company, it gets 50% of the proceeds – including any growth. If you sold 25% of your property, it gets 25% of the proceeds, and so on. At the start of the home reversion plan, the reversion company will pay you a percentage of the current market value for the share of your property that it buys. This is because you get to carry on living in the property until you die, and the company may have to wait years for its return. The amount you receive is based on your age, gender and health (and your partner’s). Older people will get more, and men get more than women – because of differences in how long they are expected to live.
Pros
- No ongoing repayments to make, the reversion company must wait to receive any money until the property is sold
- You know at outset what share of your home (if not its value) you will be leaving to your family
- You continue to share in any rise in the value of your property (unless you have sold its entire value).
- You can usually sell a further share of the property, if you had retained a share at the start
- If you have a serious illness, you may be able to get a bigger payment
Cons
- The reversion company will buy at a discount to the current market value
- If you die soon after taking out a plan, you could effectively have sold off your house (or a share of it) on the cheap. Some schemes give families a rebate if you die within the first few years of signing up
- Some reversion companies can be choosy about the properties they accept
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General information about financial services is available from the Financial Services Authority (FSA). The FSA is an independent watchdog set up by the government to regulate financial services and protect your rights. It provides free and independent information about equity release on its website at moneymadeclear
Retirement Plus is authorised and regulated by the Financial Services Authority.