KEVIN Garfagnini gives his tips on equity release
1 - Understand what it is
Equity release is a way of unlocking a proportion of the value – or equity – you have in your home in exchange for a tax-free lump sum. The Equity Release Council (ERC), the sector trade body, identifies several reasons why people use equity release as part of their financial planning – long-term care, debt repayment, day-to-day living expenses, maintaining or improving lifestyle or estate planning.
2 - Consider alternatives
Equity release is often a last resort measure. If you’re retired, you’ve paid off your mortgage and you have identified a genuine gap in your day to day cashflow your options include taking out a further loan, downsizing and selling up and renting. If you can downsize that might be the best move. But if it’s not an option and you don’t want to sell up, equity release could allow you to use your property to improve your standard of living in retirement.
3 - Involve your family
Equity release is designed to be a lifelong commitment. The needs of your children may be pressing now and in the next few years and waiting for a future possible inheritance may be too late to meet their financial planning needs. Equity release can fast forward an intended inheritance. But make sure you discuss it with them as releasing money from your home will reduce the value of your estate and therefore the inheritance that you leave your family when you die.
4 - Research the market
There are several different types of plans available, with new products becoming available that act more like conventional mortgages. Look for guarantees, too. For example, you will never owe more than the value of your home thanks to the “no negative equity” pledge offered by providers who are members of the ERC.
5 - Get advice
Taking out equity release may affect your tax position and entitlement to state benefits. There are also repayment costs to look at, which can compound rapidly. Equity release is not right for everyone, and since it is such a big decision it is essential to take specialist advice which takes into consideration all aspects of your financial situation.
• Kevin Garfagnini is director of Mazars Financial Planning Ltd