By Gordon Lishman
Director-General of Age Concern England
Thousands of people use their property as a pension
Equity release schemes have proved very popular in recent years. An expert explains what equity release involves and warns of the dangers of releasing cash from property.
Over the past decade returns on property have dwarfed those to be had from stock market investments and savings.
Some people have seen the value of their homes more than double since the mid 1990s.
It is no surprise, therefore, that equity release has caught on.
Retired people are particularly attracted to using the rising value of their homes to boost their weekly income.
There is now no shortage of schemes on the market promising to help you do just that. But do they deliver?
The answer is they can but you will need to do some homework before investing. And a number of people will find home equity release schemes, as they are called, are just not for them.
The schemes differ but essentially most of them work by giving you a loan on the value of your property.
The deal is that you receive the loan as cash, usually on a monthly basis, but sometimes as a lump sum, and continue to live in your home.
Then the company that loans you the money will recover it either by selling your property after your death or if you sell your property - for example to move into a care home.
Questions to ask
To be eligible for most schemes you should be aged 55-70, have a property that is worth at least £30-40,000, and ideally be a freeholder. If you meet these conditions, questions to ask before proceeding to invest in any scheme are:
- Does the scheme allow you to move house if you need to? One day you might want to move into sheltered housing or need residential care, or move to be nearer to your family.
- What is your life expectancy? People in their 60s and 70s usually benefit most from monthly cash payments. If you are older you may receive less from this kind of plan before you die relative to the value of your home.
- What are your family expecting to inherit on your death? The condition of most schemes is that they sell your home when you die. So if you use your property for home equity release you will not be able to leave it to your family, and will reduce the total value of your estate on your death.
- Are you living with a younger partner, relative or friend? Depending on the terms of the scheme, they will need to find alternative housing in the event of your death.
- What is your eligibility for means-tested benefits? The Minimum Income Guarantee is rising in value and the Pension Credit comes in this autumn. If you receive cash from a home equity release scheme this may cancel out your eligibility for means-tested benefits or help with paying for care.
Home equity release schemes, like pensions, can be complicated. Age Concern recommends that you get independent legal and financial advice.
Wherever possible you should also discuss the investment with your family and anyone you live with. There is nothing like property inheritance for sparking off a feud.
And if money is really tight you may be better off finding out whether you qualify for means-tested benefits or other benefits such as Attendance Allowance or Council Tax Benefit.
You might also want to consider moving to a smaller, cheaper property. If you need the cash for repairs or adapting your property you might be able to get help from your council.
If you think home equity release is for you and want to find out more, Age Concern England offers an easy to read fact sheet 'Raising income or capital from your home' free of charge from our Info Line 0800 00 99 66 open 7am-7pm, seven days a week.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.