Is Equity Release The Answer?

Independent Financial Adviser Peter McGahan advises what to watch out for when considering a lifetime mortgage.

An essential equity release checklist, and alternatives to a lifetime mortgage for funding retirement.

I have read everywhere about releasing equity from your property. Is it a good idea and what should I watch out for?

I can understand people wanting to have some cash to spend and enjoy. What I don’t like is the view of selling equity release - or as it's now more aptly named 'lifetime mortgage' - to anyone and everyone as the answer to everything. It is not. In fact it is an answer to very little.

If you live in a house and take out a lifetime mortgage, you are simply getting into debt. Dress it in any way you want, but that’s all you are doing.

Mr Blunkett recently referred to retirees having £700 billion 'tied up' in their house. What? I was at my in laws' yesterday and have been in my parents loft and I can't see a penny anywhere.

The former secretary of state for work and pensions said pensioners should be prepared to use their homes to pay for care rather than leaving it to relatives, a comment that I am sure will not have gone down well.

Pensioners have paid their taxes and paid their way. The government has had a massive period of sustained growth and has not saved for today's rainy 'days' and the pensioners are expected to bail them out.

If you really need money, and I mean really need it, consider a number of items first:

Find out about fees and grants as well as trading down before using equity release.

Seek advice from an independent financial adviser who just charges a fee as they will be independent of you taking any action.

Check to see what impact the equity release plan will have on your state benefit. Consider the drawdown option. Some companies allow you to set up the scheme but borrow when you need it. This will save you a lot of interest. Make sure you have the freedom to move to another property if needs be at a later stage.

Ensure the firm you use are members of SHIP. They are required to provide a fair, simple and complete presentation of their plans. The benefits, obligations, variables and limitations must be clearly set out in their literature, including all costs which the applicant has to bear in setting up the scheme as well as the position on moving, the tax situation and the effect of changes in house values.

They also ensure a no negative equity. In the last ten years with 40 staff we have less than ten on our books! That will give you some perspective.

Remember to seek independent financial advice before acting on any financial planning.

Need Expert Advice?

Peter McGahan

Peter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.

Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.

To ask Peter a question email connect@50connect.com, leave a comment below or visit the 50connect forum.

Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.

If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email info@wwfp.net.