Is “Equity Release” still a bad word?
As we all know, the population of the UK is ageing. According to the Office for National Statistics (ONS), the number of over 65’s has grown by 1.7 million people since 1985. The predictions are that by the year 2035, the over 65’s will reach almost a quarter of the UK’s population.
This is one of the reasons why the Actuarial Profession has predicted that the equity release market will quadruple from its current £1bn a year to almost £4bn a year by the year 2031. It is estimated that around 700,000 people will turn 65 next year and with the economic downturn continuing to darken the skies, 2017 is tipped to be a year when many will look for extra cash to subsidise their retirement.
For those with long memories, the words “equity release” can conjure up bad memories. In the late 1980’s and early 90’s, financial products were introduced that combined traditional interest only mortgages with investment bonds. The money raised by the interest only mortgage was invested in a bond. These products were flawed and dangerous. Both the interest rate on the mortgage and the returns on the bond were variable. So, in the early 90’s, when the stock market plummeted and mortgage interest rates rocketed, borrowers were left with insufficient returns to cover their mortgage payments, leading to many people losing their homes when they couldn’t maintain their mortgage payments.
Despite these products not being offered by the equity release providers at the time, they were considered “equity release” and as such, the term gained a dreadful reputation.
To avoid this happening again, the true providers set up a trade body in 1991 called “Safe Home Income Plans”. Nowadays, this organisation is better known as the Equity Release Council and is headed up by the former shadow pensions minister, Nigel Waterson, a well respected expert in the later life sector.
The Equity Release Council is the trade body for the industry and its main focus is to ensure that all products are safe and accessible for consumers. To this end, they insist that products must include certain guarantees as a minimum. For example, products must give the borrower right of tenure in their home for life. They must give the client the option to move home subject to certain criteria and must guarantee the loan can never exceed the value of the property on which it is secured. To further safeguard applicants, anyone taking out such a plan must receive independent legal advice from their own solicitor before proceeding. Equity Release is now also fully regulated by the financial watchdog, the Financial Conduct Authority.
In summary, the schemes that gained the bad publicity were outlawed many years ago. Nowadays, equity release is a far safer and innovative financial product.
Of course, that doesn’t mean that it will automatically be right for you, as there can be more suitable alternatives. The key is to discuss your options with an equity release specialist adviser who will explain all your options and allow you to make an informed choice. I recommend you involve your family in the decision and attend meetings with one or more of the family members present. If you and any of your family members want to find out more about using your home as capital, please contact me on 01204 884545. Alternatively, click here to fill in our contact form and we will be in touch.
Equity released from your home will be secured against it.