Risks and Considerations

Your family

Whilst equity release plans can be a good way to  improve your quality of life (and cut Inheritance Tax bills), they will also reduce what your family will inherit. While it should ultimately be your choice whether to sign up to a scheme, it is probably a good idea to discuss it with close family members and/or anyone who might have expected to inherit your home. In fact, unless there are compelling reasons for you not to, we would insist on having a discussion with your family so as to make sure that they are quite clear of the implications.  If the property has been a family home for a long time, bear in mind that your children or other relatives may also have an emotional attachment to it. They may even have been thinking of living in the property after you die.

Children or other relatives may be prepared to help you out financially instead of you taking out an equity release plan. They could then inherit the whole property.

We suggest you read the document from the Financial Services Authority, which can be downloaded here

Benefits

If you receive means-tested state benefits, these could be reduced or lost altogether – which in turn could mean having to pay more for things like dental treatment and glasses. We will check the rules before you take out an equity release plan and advise you accordingly.

Tax

If you have a higher income, you may have to pay extra tax! Whilst this sounds obvious, income over a certain level will reduce any age related allowance.

How to avoid any undue risk

Look for plans carrying the SHIP logo (for Safe Home Income Plans). SHIP (0870 241 6060) is an industry body set up to promote safe equity release schemes. Companies who are members provide a number of guarantees, including:

• you will have the right to live in your property for life

• the freedom to move to an alternative property without penalties

• that you will never owe more than the value of your home.

If the scheme’s income comes from an annuity, you’ll get a better rate the older you are.

If you are just retired, it may be worth waiting a few years before signing up to an equity release scheme in order to get a better deal. Equally if you are very old or in poor health you should think carefully about schemes paying monthly incomes – you may not live long enough to get a decent return.

Costs

The equity release market is becoming more competitive, but interest rates on mortgage-based schemes, for example, are still higher than those on ordinary mortgages. Most equity release plans also involve paying valuation and legal fees, although these may be refunded if you go ahead. You remain responsible for repairing and insuring your home, and will still have to pay the Council Tax. Reversion companies in particular will expect you to maintain your home to a reasonable standard to protect their investment. 

Can you move or sell up? 

You may want to sell your house at a later date and move somewhere smaller or more suitable for your needs, or you may want to sell up completely to move into rented sheltered housing or into a care home. You should check whether any equity release plan you are considering allows you to transfer it to a new property or whether there is a penalty if you end the scheme before death.

Home Reversion plans are not usually "portable" in this way.