Which? warns against equity release schemes

Which? warns against equity release schemes

Pensioners struggling to make ends meet should only turn to schemes allowing them to release value from their home as a last resort, the consumer group Which? warned today.

As living costs rise, equity release schemes, which typically let you borrow money against the value of your home with the debt being repaid from its sale only after your death, seem an attractive solution to many cash-poor, asset-rich retirees.

But a new Which? guide warns that such schemes should only be considered if retired homeowners have exhausted all other options.

According to the Care options in retirement guide, equity release schemes can be very expensive, inflexible and leave people with little or no equity in their home, severely limiting their choices later in life.

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Any money released from these schemes may also affect the amount of means-tested benefits to which people are entitled. Major problems also arise when borrowers' circumstances change, it warned.

Someone wanting to move to sheltered housing or a retirement home, for example, may have to repay some of the loan earlier than expected, potentially leaving too little equity to buy the new property. There can also be high charges for early redemption.

The Which? guide recommends that before opting for an equity release scheme, people should consider downsizing to a cheaper property, spending any existing savings, or even borrowing from family who can be paid back when the property is eventually sold.

The guide's co-author Philip Spiers said: "Anyone considering equity release should do so cautiously - and only after exhausting other options.

"In all cases, independent, professional advice should always be sought."

Outdated view

But Andrea Rozario, director general of Ship (Safe Home Income Plans), the trade body for providers of regulated equity release products, slammed the Which? guide saying its advice was based on an outdated view on equity release.

"Equity release is most definitely not an option of last resort but a logical consideration for those considering how to fund their retirement," she said.

"It offers a guarantee that older people can stay in the homes they know and love, with no monthly rent and a no negative equity guarantee.

"Which? has not taken into consideration the market advancements of the past decade, let alone the last 12 months."

Rozario said modern equity release products offered the option of a fixed rate with little or no redemption penalty, and that in recent months rates had been falling.

"This, coupled with safeguards offered by Ship members and compared to normal mortgages, not only means that the products are safe but also incredibly flexible, offering people options that they might not otherwise have considered, which could vastly improve the quality of their lives."

Both Ship and the Which? guide agree that anyone thinking about equity release should seek qualified financial and legal advice and involve their families in any decision making.

Today, three of the leading independent equity release advice companies announced they had formed an alliance to promote high-quality, impartial advice for consumers in the face of an increasing number of non-specialists coming into the market.

Key Retirement Solutions, Age Partnership and Equity Release Solutions have joined forces under the banner name Safer (Specialist Advisers for Equity Release).Tim Loy, chief executive officer of Age Partnership, said: "Many advisers from the sub-prime and buy-to-let markets looking to find a replacement income stream are entering the equity release market without the necessary skills, knowledge and qualifications.

"This could have a serious detrimental effect on the quality of advice and confidence levels in the market."

Members will have to abide by a code of conduct which promises customers a full report covering state benefit entitlement and the effects of equity release, and that advice will only be given on products which have a no negative equity guarantee.

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