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Equity release: Unlocking wealth in your home

Square One Law partner Francesca Angelucci assesses equity release options

Recent reports suggest that retired home-owners are increasingly using equity unlocked from their homes to help manage their financial commitments.

According to Key Retirement’s latest Market Monitor report, nearly £341m of property wealth was released in the first three months of 2015, up from £330m last year. The most common reasons are for home improvements however there has been a marked rise in the number of people using equity release plans as a way to pay off debts or to support their families.

The average amount released specifically to boost retirement income has also increased and reached nearly 9% to £66,730 in the three months compared with £61,200 last year.

Equity release plans are a way for home-owners over the age of 55 to release funds on the basis that the loan is secured against their property and is only repayable upon sale of the property or in the event of death or leaving the property to go into permanent long term care.

The plans can be attractive as nothing usually has to be paid back until the mortgage holder dies or sells their home. The plans secure a flexible way of releasing money so policy holders retain full ownership of their property without the worry of meeting regular monthly repayments.

The additional bonus is that most equity release plans offer a no negative equity guarantee, which means that the amount repayable under the plan will never be more than the amount the property is sold for.

Whilst this may appear to be a win-win situation, if you are considering equity release, you need to bear in mind that it will reduce the value of your estate and may also affect your tax position as well as your entitlement to state benefits further down the line. If you are considering an equity release then you ought to obtain specific advice on these issues before committing to any loan of this nature.

The impact of future house price inflation should also be taken into consideration when weighing up equity release plans as this will also significantly impact the value of your estate.

As with all personal finance offers it is important to weigh up your options, and, as is often the case, it can be wise to not “put all of your eggs into one basket” when considering your retirement funds. However, t is advisable to consider complementary streams of income such as pension plans and equity release schemes. The demand for equity release plans are on the rise and can be a great and flexible product so if you’re in any doubt about your options and the best route to take, then seek professional advice.

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