Colin Taylor, managing director of Key Retirement Solutions said: "Many pensioners have already had to endure annuity rates falling by 12% last year and as insurance companies continue to adjust to increased life expectancy they could fall further. This, coupled with poor stock market returns means that many retired people are becoming increasingly cash poor but equity rich as the value of their homes increase. This helps explain why as many as 800,000 retired homeowners would or are considering taking out a home equity release scheme.
Key Retirement Solutions estimates that the nation's retired homeowners have seen the value of their homes increase by £77.5 billion over the past 12 months and that they have a staggering £688 billion of equity in their homes. In order to release some of this value, there are three types of home equity release schemes which they can use:
_ Mortgage Plans. A percentage of the value of the property is released as a mortgage loan. Equity release mortgages do not require interest payments throughout the term of the loan, thereby making the purchase of an annuity unnecessary. The interest (at a fixed rate) is rolled up onto the loan, and is repaid with the loan from the final sale of the property.
_ Reversion Plans. A percentage of the homeowner's property is sold to a Reversion Company. The resident retains occupancy rights for life, and the freedom to move whenever they choose. The homeowner receives a cash payment to spend, or to invest, or to do a combination of both.
Reversion plans can realise a greater level of equity than mortgage plans which means that the amount of money released tends to be higher. Inheritance can be guaranteed with these schemes because a percentage of the property is sold and both parties share in any increase in value. When the property is sold, any gain is divided according to the share of the property belonging to the reversion company and the percentage to the homeowner.
Colin Taylor said: "If you decide to buy an equity release product it is essential to seek advice from a qualified adviser who will ensure you take out the most appropriate scheme for your needs. It is also vital to purchase one from a company which is a member of SHIP, the voluntary organisation which sets standards for the industry. This is because they adhere to a strict code of practice which provides customers with great peace of mind. For example, all members have to agree to provide fair, simple and comprehensive information on their plans, setting out all of the benefits, obligations, charges and limitations. They also have to insist on a customer using a separate legal adviser from the plan provider, providing an extra safeguard. SHIP members, of which we are one, account for 90% of the marketplace."
Key Retirement Solutions has produced a free guide on equity release. To order one or to make an appointment with a Key Retirement Solutions adviser please call on 0800 064 7075.
