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With declining house prices and increasing mortgage rates is equity release a viable proposition? Paul Barnes, Halcyon, Stratford Upon Avon

Alison Beeston, Bridgewater Equity Release, Newcastle

Dear Paul,

It is fair to say the overriding need and demand for equity release products is not going to go away simply because house prices have fallen slightly and the markets are somewhat jittery. Taken as a whole, house prices have risen by around 180 per cent in the last 10 years, so a small drop is not a huge concern.

Most households are still sitting on large amounts of equity because of price rises. Coupled with this we know the cost of living is increasing – food, utilities and petrol have all risen recently. These are absolute necessities and their increase will hit those on fixed incomes particularly hard. Those about to retire or that have just retired will also still have ambitions and plans for their retirement. According to recent research – both Council of Mortgage Lenders and FSA – these people are now much more likely to regard their homes as an asset to fund their retirement.

In the current climate, home reversion plans in particular are certainly viable. Customers are possibly more risk-adverse at present, which means the situation with a lifetime mortgage, a rolled-up debt against an asset which is potentially falling in value, could be a much more difficult sell. On the other hand, home reversions not only allow the customer to release cash but they pass on the risk of falling house prices to the plan provider. Home reversion can also guarantee that a proportion of their home passes to their estate.

John Digman, Newcastle Equity Release, Newcastle

Dear Paul,

On the whole the equity release sector has been only slightly effected by the credit crunch in comparison with the grave implications it has had in the residential mortgage market. One area where we have seen a change is in decreasing property values and advisers must take utmost care to ensure clients have realistic expectations of the value of their property.

It is imperative advisers discuss the cyclistic effects of the property market so their clients are fully aware of what a downturn could bring and understand the risks. That said there are many ways for clients to protect themselves against a cooling market. All products from Ship providers carry a no negative equity guarantee and there is also a raft of protected equity products on the market that may be beneficial to those who are worried about their property value. One trend in the residential mortgage market that we fully expect to be mirrored in equity release is increasing interest rates.

Two equity release providers have already raised the rates and it would be surprising if others did not follow suit. However, rates are still relatively low and competitive compared with the those in the early 1990s. That equity release is still a viable proposition for customers is unquestionable. While market conditions are changing, the needs and drivers for this type of product are not and there is still a clear need – if not a greater one – for this type of product for many people.

Kirsty Jackson, Mortgage Express, New Barnet, Hertfordshire

Dear Paul,

While the wider mortgage market may be experiencing a slowdown as a result of the credit crunch, the current economic environment is likely to drive demand for equity release products for a number of key reasons.

While many consumers will be feeling the strain of increasing living costs, pensioners are likely to be among those most affected because they tend to be on a fixed income that will have not kept pace with recent increases in food prices and utility bills. Many will therefore be looking at alternative sources of income to either help make ends meet or provide them with the money they need to enjoy their retirement.

House price growth may be slowing but this is unlikely to act as a deterrent to those looking to release equity from their homes because many will want to take maximum advantage of the increase in the value of their home in the last decade while they still can. In addition, lifetime mortgage rates remain competitive. We believe the growth of the sector will also be driven by a greater number of intermediaries choosing to advise on equity release as they look for additional income streams in the current market conditions.

Andrea Rozario, Safe Home Income Plans, London

Dear Paul,

The current situation in the property market does not mean the door is closing on equity release – far from it. Falling property values do however make the very high standards that Ship members must adhere to all the more important to consumers, especially the guaranteed security of tenure and negative equity protection.

Declining levels of pension investment by individuals and employers and the extent to which Britons have in preference invested heavily in property for many years now, mean equity release will become increasingly important, even if property values do come down from their recent highs for a while. There is an argument for those planning to access the value in their property to move quickly if their need is imminent.

Those looking to the longer term should take comfort in the longer term trend in property values, which is always up. The truth is equity release has a vital if not pivotal role to play in the UK population's long-term financial planning. Advisers have a crucial part to play in showing the more than 65 per cent of homeowners who do plan to use the value in their property how this can be optimised alongside traditional pensions, Isas and other forms of investment.