8 top equity release tips

by CCCS on 17 January 2012  |  0 comments
Tweet

Equity release is a controversial subject, but provides a lifeline to some pensioners. Here's how to ensure you get the right deal for you.

This week Which? released a report stating that CCCS Equity Release was the only equity release service to pass all of the consumer watchdog’s ‘best practice’ tests in a mystery shopping exercise that investigated 22 advisers from across the market.

We asked Tom Moloney, Equity Release Manager at CCCS, for his tips on getting the right equity release deal.

Equity release is an emotive and controversial subject. Having worked all our lives to clear our mortgages we often find it difficult to accept having to place another mortgage on, or perhaps even having to sell a share of, the family home. Children can also be sensitive to anything which may impact upon any future inheritance.

What's more, unregulated and unfair plans from the 1980s have attracted a lot of negative publicity in recent years and most of us are extremely cautious when exploring our equity release options.  But, regardless of what our individual thoughts might be, demand for this product is increasing.

My eight tips are no substitute for good financial advice but should form the basis of any decision to proceed with an equity release plan.

1. Consider the alternatives

The decision to release equity from your home is a significant one and like all borrowing decisions it must not be taken lightly. Assessing all your options may eliminate your need to borrow or reduce your actual borrowing requirements.

Even a small reduction in the amount required can significantly reduce the associated long-term cost.

The most common alternatives considered are:

• Downsizing
• Borrowing from family or friends
• Use of existing savings/investments
• Unclaimed benefit entitlement
• Home improvement grants

2. Don’t borrow more than you need

Make a detailed list of your immediate spending plans; you want to avoid paying interest wherever possible. 

If you are likely to need more money in the future, flexible drawdown plans can provide access to additional funds as required. This means interest is only charged on monies you have actually borrowed.

Borrowing money gradually can be far more cost effective than taking an initial, single cash lump sum.

3. Involve family members or a trusted friend

Although you’re under no obligation to do so, we would strongly recommend that you discuss your plans with family. If you decide not to seek their involvement you may wish to inform them that any future inheritance will either be reduced or eliminated.

If you do not involve family members then we would suggest discussing your plans with a trusted friend. It’s also good practice to inform the executors of your estate as they may have to liaise with the equity release provider when the plan is redeemed.

4. Don’t select a plan primarily on interest rate

While obtaining a competitive interest rate is important you must also consider how the plan will meet your future needs. Some of the questions that need to be answered when choosing a plan can include;

• Can the plan be repaid early? Are there any early repayment charges?
• Can you borrow additional funds in the future? What costs are involved?
• Can the plan be moved to another property?
• Who will retain ownership of the property?
• Is the plan FSA-regulated and SHIP-approved?

Any plan you choose must not only meet your immediate requirements but also should be flexible enough to adapt to any future life changes. 

We’d strongly recommend that you pay particular attention to any associated early repayment charges. Experience shows that the application of these charges often eliminates our ability to change the plan later in life as clients' needs and requirements change.

5. Obtain independent legal advice

All SHIP-approved equity release providers require you to seek independent legal advice.  Ensure your chosen solicitor has equity release experience and ideally agree a fixed legal fee before proceeding.

6. Don’t proceed without specialist financial advice

Seek advice from a qualified and experienced adviser who has access to all the plans and plan providers in the market. This will ensure that all available options have been considered prior to any recommendation.

Be aware that direct sales teams usually offer tied advice; this means they can only source a solution from a limited range of products and providers.

7. Consider the impact on means-tested benefits

Holding additional funds on deposit may impede upon your eligibility for benefits now or in the future. Your adviser should undertake a full benefits assessment to ensure you’re already in receipt of the maximum amounts available and to measure what impact any borrowing may have on your current and future entitlement.

8. Don’t borrow money to invest

We strongly advise against releasing funds to invest. It is unlikely that any investment would provide a return greater than the costs associated with any borrowing. Equity release plans can provide the option to create a monthly income without the risks associated with investments.

To find out further details about the CCCS Equity Release service phone 0845 0742987.