Equity release has come a long way since the home income plan scandal of the 1990s and are now considered by many retirees as an integral part of their retirement planning strategy.
Today the majority of equity release schemes involve homeowners taking out a lifetime mortgage to provide a cash lump sum or an income for life as a means of boosting retirement income. A mortgage is raised against the value of an unmortgaged property, with the capital and interest being paid off from the sale of the property when the homeowner dies.
Why has equity release become more popular in recent years?
People are living much longer than they used to, meaning that increasing numbers of retirees are falling into poverty as they grow older because their pensions become eroded by inflation.
Fewer people nowadays are in receipt of a good final salary pensions in retirement and are instead having to manage on tiny pensions bought from the proceeds of money purchase pensions. Buying inflation proofing via a money purchase pension is extremely expensive, so few retirees buy this when they purchase an annuity.
The trade body, Safe Home Income Plans (SHIP) has done much to make equity release schemes more secure through its code of conduct and safeguards such as its ‘no negative guarantee’ that all SHIP members have to sign up to.
Lifetime mortgages and home reversions are both now regulated by the FSA and new drawdown products, which allow people to draw down small lumps sums in stages, have made lifetime mortgages much more flexible and attractive.
Rapidly rising house prices in the period between 1997-2007 have also made many retirees ‘property rich’ giving them much more equity in their homes to draw down than would have been possible 10 years ago.
