Equity release schemes provide a method by which retired homeowners, and homeowners who are approaching retirement, are able to raise money from the value tied up in their family home. Two main types of plan exist: home reversion plans, and lifetime mortgages. The Financial Services Authority (FSA) are responsible for the regulation of this market, and they provide a fact sheet which explains the options available to prospective customers. There may also be disadvantages for some people, and equity release schemes are not suitable for everyone.
The equity release option might be suitable for those who are about 55 years of age, or older, who are home-owners with no outstanding mortgage, and who want to realize some of the value of that home either as a cash lump sum, or as extra income. Plans such as home reversion plans and lifetime mortgages can help people such as these to realize some of the value tied up in their property, and to be able to spend that money during their lifetime.
There are 2 main types of plan available: home reversion plans, and lifetime mortgages. When a person takes out a lifetime mortgage, they borrow a sum of money which is secured against the value of their property. There are number of options covered by lifetime mortgages, they may be categorized as home income plans, fixed repayment mortgages, interest only mortgages, and roll-up mortgages.
A lifetime mortgage does not have to be paid until the property owner ceases to live in the property. This may be when they die, or it may be due to moving into long-term care, or simply moving to a different home.
A homeowner with a lifetime mortgage retains full legal ownership of the property. This is in contrast to a home reversion plan, where the ownership, or partial ownership, of the property is transferred to another party. This may be arranged by a reversion company, who will either buy the property themselves, or arrange for it to be purchased by an investor.
With a home reversion plan the original owner will get a long-term lease, allowing them to remain living in the property. There will probably be a small nominal rent charged. The owner can remain in the property for as long as they wish to do so.
The Financial Services Authority (FSA) is responsible for the regulation of the equity release market, and a fact sheet explaining all the options can be downloaded from their website. The regulations ensure that mortgage providers offering the schemes will always take into account the individual circumstances of their customers, and will only sell products which are appropriate to their needs.
Providers will produce a personalized illustration for each prospective customer. This is called the Key Facts document. As this is in a standard format customers can easily compare the products from different companies. In addition to the FSA regulation of the market, there is a voluntary scheme set up by the industry itself, the Safe Home Income Plan. Members of this scheme provide a several guarantees to customers including a guarantee that customers will never end up owing more money than their home is worth, and will always be able to remain in their home so long as they wish to do so.