Page last updated at 12:16 GMT, Monday, 22 September 2008 13:16 UK

Warning over home equity release

Elderly couple
Some pensioner choose to unlock equity on their homes

Pensioners should only consider unlocking equity from their home as a last resort, a UK consumer group says.

Equity release schemes could be expensive, inflexible and leave people with little equity, according to Which?

And any money people released from their property could also affect the level of means-tested benefits which they were entitled to, Which? adds.

Equity release allows retired homeowners to obtain money from their property without having to move out.

People can be given a lump sum or regular payments in return for taking out a mortgage on their home, which does not have to be repaid until they die or sell their property. Interest is added to the amount owed until such time as a payment is made.

Alternatively, people who own their home outright can sell a portion of their property to a home reversion company.

But Which? is warning that problems could arise if the borrower's circumstances change.

Anyone considering equity release should do so cautiously - and only after exhausting other options
Philip Spiers, Which?

An individual who wanted to move into sheltered housing or a retirement home may have to pay back some of their loan earlier than expected.

This could potentially leave them with too little equity to buy a new property, Which? added.

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.

Which? is urging people to consider other options before turning to equity release.

'Seek advice'

These include downsizing to a cheaper property, using their existing savings, or even borrowing money from family that could be paid back when their home is eventually sold.

Philip Spiers, who co-authored the Care Options in Retirement guide for Which? said: "Equity release might seem like the solution for any pensioners struggling to make ends meet this winter.

"These schemes provide income while enabling you to stay in your own home.

"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."


Andrea Rozario, director-general of Ship, claimed that Which's report was "outdated".

"It has not taken into consideration the market advancements of the past decade, let alone the last 12 months," she said.

"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 comparison 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."

Releasing equity from your home
24 Apr 07 |  Business
Q&A: Equity calculator
16 Oct 07 |  Business
The ins and outs of equity release
04 Oct 07 |  Business

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