Equity release: What is available, and who is it for?

This article is part of
Equity Release - June 2014

Equity release products have moved a long way from the horror stories heard from the 80s and 90s.

There is no doubt that equity release products no longer leave vulnerable customers exposed to the threat of negative equity as they once did; not only are they now fully regulated, but the Equity Release Council sets standards focused on consumer protection.

However, according to Dean Mirfin, group director of Key Retirement Solutions, the industry still suffers due to its history despite 10 years of regulation and in spite of the fact products available today “are completely different to their predecessors and offer much greater security to consumers”.

Andrew Tully, pensions technical director at MGM Advantage, agrees, adding: “Many years ago, equity release schemes had a rather dubious reputation, however the reality today is different.

“Equity release products became regulated by the Financial Conduct Authority in 2004. In addition, the industry body, the Equity Release Council, focuses on protecting consumers.”

Vanessa Owen, LV’s head of annuities and equity release, echoes the sentiments and says clients who opt for product from a member of the Equity Release Council are provided with several safeguards and guarantees, “for example they will never owe more than their house is worth and will be allowed to remain in their property for life”.

One of the key developments in the equity release sector was the introduction of products which allow monthly interest payments to be made, according to Mr Tully.

He says: “This means people have more choice in how they manage a lifetime mortgage, and means people are able to stop, or dramatically reduce, the interest building up on the loan amount.”

But beyond the positive sentiment expressed by those across the sector, what propositions are now open for prospective borrowers?

Home reversion

The purpose of equity release is to allow people to release some of the cash stored up in their most valuable asset, their home, without the need to move, but there are different ways this can be accessed.

Broadly, equity release products fall into two types with a few nuanced variances: ‘home reversion’ plans and lifetime mortgages Both are fully regulated by the Financial Conduct Authority.

With a home reversion plan, the reversion provider buys a percentage or all of the property once the client has determined the level of cash required.

Chris Prior, manager of sales and distribution at Bridgewater Equity Release, explains: “The percentage of the property not used would then be guaranteed in the event of death to go to the beneficiaries and during the lifetime of the plan the client does not make any payments and there is no accruing interest.

“The client knows the equity that has been used as a percentage of the property and also what percentage will remain for the beneficiaries. The percentage remaining will be that of the property value at the time of death.”