loan search for homeowners

Despite its recent poor reputation, equity release is becoming increasingly popular and industry experts say the quality of the deals is improving along with the advice.

Those heading for retirement are warming to the idea fastest as one in 10 people aged between 50 and 56 said they would consider equity release in future.

However, those already retired are less enthusiastic with only one in 20 thinking equity release would be sensible.

Demand is up 10 per cent this year on 2006 with the amount of equity being withdrawn by older homeowners up by 26 per cent in 2007, taking the total to above £1 billion for this year.

More than 22,000 households have signed up since January, releasing an average £49,000 of equity compared with £42,100 in 2006.

For many older homeowners, tapping into their property's value is the only solution to money worries. Many are considering a secured loan to bring in much needed funds.

However, don’t consider an equity release deal without first thinking of other cheaper, simpler ways of finding money, perhaps through downsizing, selling other assets, or even coming to an informal arrangement with close family.

Read as much as you can about different schemes and seek help from an independent adviser who is able to recommend deals from numerous companies, or seek information from at least two rival firms. Invite a family member to attend adviser meetings.

Consider a wide range of future scenarios, including how long you might live, what would happen if you needed care, and whether you would easily be able to move home.

Rising prices often hit the elderly harder than anyone else. Many of them have to get by on fixed incomes and may be forced to dip into savings to pay their everyday bills.

Increasing numbers of older people are turning to equity release as a way of raising much-need funds, but it is important to consider the alternatives first such as moving to a smaller home. Capital raised this way will cost you less in moving expenses than in equity release set-up charges and interest.

If you do not wish to move, it is essential to discuss your plans with your family before proceeding with equity release. This will avoid any unnecessary family surprises later on and they may be able to suggest alternatives.

With more than 30 equity release schemes available it will be difficult to find the best deal yourself. Not only that, many of the schemes are available only through authorised intermediaries. So find an independent specialist in equity release advice.

Choose your adviser carefully and make sure they are conversant with all aspects of long-term care funding. Some of this may be relevant to you now or in the future. The wrong advice could cost you dearly, an adviser who specialises in all these areas will be able to explain all the relevant issues and achieve the best outcome.

Ask your adviser about equity release fees – and make sure you get value for money. Borrow only as much as you intend to spend or give away. You will earn much less from cash left on deposit than the interest you will have to pay for borrowing it in the first place. It could also cut your entitlement to means-tested benefits.

When comparing lifetime mortgage interest rates always pay particular attention to the APR and not just the headline rate. The difference can add up to 0.5 per cent on the rate actually charged. This is due to the costs of setting up the arrangement and how interest itself is calculated.

Ask your adviser about continued support and advice. This could range from claiming welfare benefits, or care and support from the local authority, to mitigating inheritance tax.

Clearly, the equity release market is set to grow. But there are other choices available and homeowners should approach the decision with caution. Certainly check out all options first and discuss it with an adviser and family. Never be pushed into taking out a loan.

 The author is Melinda Varley who is an experienced journalist currently specialising in articles for the financial field. Melinda has held several positions for magazines and newspapers and has written hard copy and for online audiences, both in the UK and Australia, which is where she originates from.

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their needs. If there is something in the article which you wish to rely on then please check those details with the person with whom you arrange secured loans, remortgages or other financial service.

The views in this article represent those of the author and not those of Netbasic Limited.