Six equity release myths exploded

By Mike LeGassick, Independent Financial Adviser

If you’re in need of a cash lump sum, you may consider joining the thousands of people who have taken out an Equity Release plan, enabling them to borrow money against the value of their home.  Yet ‘urban myths’ about Equity Release still abound; so it's time to set the record straight.   

Myth 1:  You won’t own your home any more.

There are two ways to release the cash tied in up your home.  The first is ‘home reversion’ – and in that instance then yes, your home is sold to the home reversion company in exchange for cash and the right to remain living in the property. 

But the far more usual approach to equity release is a ‘lifetime mortgage’, covered by The Equity Release Council guarantees.  You borrow money against the value of your home, but the property remains yours.  The equity release company is granted a legal charge over your title deeds to ensure that any remaining debt is repaid to them when the property is sold.  But importantly the property is still yours and you can live in it for the rest of your life if you want to.

Tomorrow never comes!

Tips on planning your finances, from Steve Manning, Founder of Manning and Company Independent Financial Advisers

Steve, it’s a tough economy at the moment.  Why should people still make it a priority to plan for the future?

Yes, there are lots of demands on everyone’s finances today.  But the fact is tomorrow WILL come!  A recent report by HSBC showed that the British are woefully unprepared when it comes to funding their retirement – actually, the worst of the 15 nations surveyed.  An average retirement in the UK will last 19 years – yet the average person’s pension pot will be used up in just 7 years.  State pension benefits won’t come close to funding the standard of living most people expect.  The important message is this: your future is in your hands.  If you don’t plan sufficiently today, then it won’t be the future you hoped for.

Is a traditional pension scheme the right approach?  Or are there other options?

Some people are relying on property assets to fund their retirement – or savings; perhaps an inheritance; or investments.  The point of a pension plan is that it’s a systematic and reliable way to save for the future.  It gives you choices when you reach retirement age; and there are tax benefits too.  It’s fine to build up a mixed portfolio, as long as it works together sensibly and cost-effectively.  It’s wise to take independent advice to make sure that’s the case.

What about those who are “asset rich but cash poor”?

The reality is that many people have a lovely home, yet very little money.  Equity release has received some bad press over the years, certainly; and it’s made people approach it with caution - as indeed they should, because it does have implications.  Yet with today’s equity release plans it may still be the right option for some people.  It can provide the cash they need, and still allow them to live in the home they love.  It’s not the only option though; and seeking independent advice can help find other choices.

Equity Release: Will there be any money left for my children?

By Peter Harrison, Chartered Financial Planner, Manning and Company

Hot topic this – you are short of cash, but have a valuable house with little or no mortgage left. Wouldn’t it be a good idea to use the house as collateral for a loan? What could possibly go wrong...?