The vast majority of older property owners in the UK can easily be described as being ‘property rich but cash poor.’
In fact new research has revealed that property owners over 50 have got an estimated £750 million in equity in their homes (where their market value exceeds any debts attached to them).
Yet despite this available equity, there is some scepticism about the profitability of equity release schemes (home income plans) following their disaster in the nineties...
Faced with rising interest rates as well as falling shares and property prices, early schemes found many pensioners who had borrowed against their home plunged into negative equity. Fortunately most mortgage lenders have now drawn up a voluntary code of practice for safe home income plans (SHIP) which are designed to reduce the risks related to equity release.
Similarly, the Financial Services Authority (FSA) has brought home income plans within the scope of their regulation to ensure property owners are not offered bad advice. But this is not all…
Property advisors recommend bearing in mind the following before considering equity release:
- On average equity release scheme interest rates are around 7% (nearly double mortgages rates). This means that in 10 years time, the size of property owners debts could double.
- Most mortgage lenders subscribe to the SHIP code of practice. This ensures that equity release borrowers can stay in their property investments as long as they live.
- Given the amount of money involved, property advisors recommend paying for your own solicitor to check over the paperwork.
- Make sure everything is written in plain English so you can understand everything the contract contains and are not confronted with any nasty surprises.
- Take your time to decide and do not let lenders rush you.
- Look for home income plans which allow you to move home without imposing any penalties or immediate repayments of all debts.
- Search for SHIP schemes which provide a ‘no negative equity guarantee’ so your debts can not exceed the value of the property investment
Posted: 2. November 2011 10:20