Equity release

We are all aware of the changing attitudes to retirement, where those who retire aspire to a life of activity and comfort. In days passed a pensioner settled for an old age in front of the television or tending the garden. Aspirations for today’s retirees are wholly different with a retirement filled with travel, adventure and new experiences. Today’s 65 year old is considerably younger in outlook than there predecessors. However they also have to cope with a much published pension crisis, state pensions value being eroded, under funded company pension schemes and lower annuity rates and for many inadequate personal pension planning. As a result many people approaching retirement have the quandary of in that their aspirations are in excess of their retirement income. In some cases the problem is far deeper with basic needs exceeding income although means tested supplementary state benefits are available to improve the less affluent pensioner’s income.

In contrast to this worsening pension income situation the number of pensioners owning property is ever increasing and the value of that property has soared in the last decade. An ever increasing number of retirees can be termed asset rich and cash poor. They own significant assets but have a limited pension income. The family home is most individuals greatest capital asset and this situation has been amplified by increasing property values.

The difference between the value of a property and any loans secured against it is known as the equity. Equity release can therefore be defined as the transfer of an interest in the property from the owner to a third party in the exchange for cash or an income.

Types of Equity Release

Lifetime Mortgages

They are available only to borrowers over a certain age. No capital or interest payments are required during the lifetime of the mortgage, although interest is rolled up and added to the debt. The mortgage is repaid in the event of a borrowers death, a move into residential care or sheltered accommodation, the borrower moving to another property or the borrower choosing to repay the loan.

Home Reversion Schemes

The home owner transfers ownership of some or all of the property to a company in exchange for a cash sum or an income. No interest is paid to the company. The original owner retains the right to live in the house until death. On death the property (or part of it) reverts to the company-hence the term home reversion.

Consumer Protection

Safe Home Income Plans (SHIP) was launched in 1991 in direct response to the growing need for consumer protection. SHIP represents the majority of the equity release market in terms of volume and its members include the leading providers of lifetime mortgages and home reversion plans. The main aims of SHIP equity release are:

1. To remain dedicated to the protection of the consumer through our code of conduct.

2. To increase education, awareness and understanding of the safeguards in place and of how equity release works.
All member companies must observe the SHIP Code of Conduct and members display the SHIP logo in their brochures and other printed material as a guarantee to their customers.

As the equity release market has evolved and products have become more flexible and innovative SHIP members still ensure that by abiding by the Code of Conduct customers can have peace of mind. These guarantees go over and above FSA regulation and offer real tangible benefits to consumers.

SHIP members are keen to ensure products meet customer expectations and requirements. It is therefore important to us that we also hear the views of existing equity release plan holders or those who are looking to set up a plan.

The SHIP Code of Conduct provides firms with strict criteria that need to be met in order to become a member. The following guarantees have to be provided to customers:

1 . To allow customers to remain in their property for life provided the property remains their main residence.

2 . To provide customers with fair, simple and complete presentations of their plans. This means that the benefits and limitations of the product together with any obligations on the part of the customer are clearly set out in their literature. It should include all costs that the customer has to bear in setting up the plan as well as the tax implications, their position on moving house and the effects of changes in house values on their loan.

3 . The right to move their plan to another suitable property without any financial penalty

4 . The right for the customer to choose an independent solicitor of their own choice to conduct their legal work. The firm must provide the solicitor with full details of the benefits their client will receive prior to the completion of the plan. The solicitor only signs a certificate once he or she is satisfied that their client fully understands the risks and benefits of the plan.

5 . The SHIP certificate signed by the solicitor is there to ensure clients are aware of the terms and implications of the plan including the impact of equity release on their estate.

6 . All SHIP plans carry a no negative equity guarantee. This means customers will never owe more than the value of their home and no debt will ever be left to the estate.

Braemar Wealth Management (NW) Limited is authorised and regulated by the Financial Services Authority. Braemar Wealth Management (NW) Limited is entered on the FSA register (www.fsa.gov.uk/register/) under reference 425022. The FSA does not regulate some forms of tax planning and investment structures.
Registered in England & Wales, number 05328421.
Registered office – 38 Woodlands Parkway, Altrincham, Cheshire WA15 7QU