Announcing a bold new step to further ensure the safety of older homeowners who use equity release to raise funds. SHIP, the trade body for equity release, has established a Fraud Working Group to consider the impact of fraud on equity release.

This comes ahead of the trade body’s re-launch as a new organisation that will represent the whole of the equity release industry.

The primary objectives of the Fraud Working Group will be to bring together SHIP members, advisors and solicitors to implement good practice guidelines across the industry to help ensure every possible step is taken to combat fraud in equity release.

SHIP intends to build relationships with suitable organisations to share information and raise fraud protection standards.  This will add to the safeguards already adhered to by SHIP members, and help to ensure that equity release products are safe and reliable for consumers.

The immediate priorities of the Fraud Working Group will include:

• Identification of organisations that can help to provide early warning of suspicious activity occurring within the equity release market
• Establishment of communication channels with suitable organisations to help industry wide awareness of potentially fraudulent activities
• Consider ways of distributing information and ensure that the industry is able to present a firm and united stance to combating equity release fraud
• To establish SHIP representation at the Mortgage Fraud Forum
• Proactively pursue opportunities to share best practices in fraud prevention
• Support initiatives to help combat fraud within equity release

Andrea Rozario, director-general of SHIP, says: “A person’s home is often their largest and most valuable asset – both financially and often sentimentally.  Therefore the decision to release the equity from it is a big one, and it is important that consumers have confidence in the safety of the products they have chosen.

“SHIP’s Code of Conduct has helped to protect customers and build the reputation of the industry.  The Fraud Working Group will work to develop industry guidelines to further increase standards.”

Source:  Mortgage Strategy

This article, Fraud Working Group to combat equity release fraud, brought to you by What Is Equity Release.

This article, Equity release a mainstream product soon?, brought to you by What Is Equity Release.

Many Brits have significant equity tied up in their properties, and many more have an insufficient pension pot to fund the lifestyle they want in retirement, writes Christina Hoghton, at AOL Money.

So it comes as no surprise that sales of equity release schemes have increased by 10% in the last year, as older homeowners begin to realise the value of freeing up the equity trapped in their properties.

According to the trade body for equity release providers, SHIP, almost £200 million was lent in the first quarter of 2012 alone, a significant 10% jump on the same period last year.

Andrea Rozario, director general of SHIP, reckons this increase demonstrates that consumers are more confident and more aware of equity release as a way of boosting their finances. She says: “These figures are extremely encouraging and show that the market is continuing to grow steadily, and that there is an appetite amongst consumers for equity release products.”

However, the increase isn’t just driven by homeowners becoming aware of this method of accessing your equity – there is also a growing need for it.

Many older homeowners do not have the pension pot they expected, as a result of poor savings and investment returns. Indeed, equity release is increasingly used to plug the gap for those with an endowment mortgage shortfall. Others simply need a little extra to keep them in the lifestyle to which they have become accustomed.

But what exactly is equity release, who does it best suit and what are the pros and cons?

The lowdown

Equity release is a way to unlock cash that is tied up in your home as equity, without needing to move, and it is available to over 55s. You can either take a cash lump sum or an income, or you agree a maximum available pot that you can withdraw money from as and when you need it.

There are two main types of equity release scheme, as Peter Welch, head of sales at Bridgewater Equity Release, explains:

“A home reversion scheme is where an equity release provider will either buy all (or a portion) of your home for a cash sum and you can live there rent-free for as long as you choose.

“Alternatively, a lender will give you what’s called a lifetime mortgage, where the interest is paid after the property is sold. Both plans cater for different requirements and a specialist adviser will help you decide which to go for.”

A lifetime mortgage differs from a standard mortgage because you don’t make any payments now. The interest rolls up until the property is sold, after your death or if you move into long-term care. At that point the initial loan plus the interest is repaid from the proceeds of the sale of your home.

What can you use the cash for?

When you release equity you are free to spend the money on whatever you like. Welch says: “People release cash for many reasons, including home improvements, cars, caravans and gifting to younger members of their family for university fees or a deposit on a house.

“Recently, more people are using equity release to repay a mortgage or other loans and increasingly the products are being used to move to a more expensive property in retirement, like a bungalow by the sea.”

Pros and cons

There’s no doubt that equity release is a growing market, but the products are also complex and any plan taken out will have an impact on the inheritance you leave to your loved ones. That’s why it’s vital you fully understand the implications of any scheme you sign up to.

The benefits of releasing equity in this way are clear:

• Access cash that was previously tied up in your home
• You don’t have to move area or downsize to access this money
• You get to stay in your home for as long as you want
• Pay nothing until after your death (or if you move into long-term care and the property is sold)
• Use the money to fund your retirement, to gift to your family or for any other purpose.

Of course, there are also drawbacks to equity release which you should be aware of:

• With a home reversion plan the provider will own a portion of your home, and will receive that portion of the proceeds when the property is sold
• With a lifetime mortgage, the proceeds of the sale of your home will need to cover the mortgage owing, and this could eat up some or all of the money raised
• This will reduce the amount left to your family or others when you die.

Think carefully

It is essential that you think carefully about an equity release scheme before signing up, and that you take expert independent financial advice. In addition you should take separate independent legal advice.

And while it isn’t compulsory, it is recommended that you speak to your children or the other beneficiaries of your will to inform them of your decision and the impact it will have on them in the future.

There is an easy way to make sure that you are dealing with providers that adhere to the highest standards, which is to look at schemes from companies that are members of the trade body, SHIP.

As Welch explains: “Safe Home Income Plans (SHIP) ensures its members’ products have a number of customer safeguards built into their plans. These include a guarantee that you can live in your home for as long as you choose, that you can move home if your circumstances change, a ‘no negative equity’ guarantee and, importantly, that you’re entitled to independent legal advice.”

There is no doubt that more of us will turn to equity release as a means of funding our retirement – the mammoth pensions gap makes this inevitable.

According to Aviva UK adults need to save an average extra £10,000 a year in order to live comfortably in retirement. With hundreds of billions of pounds tied up as equity in the nation’s homes, equity release offers a way to help plug this enormous gap.

Source: AOL Money

This article, The pros and cons of equity release., brought to you by What Is Equity Release.

Drawdown equity release sales surged 11% in Q1 2012 to account for 66% of all equity release deals, Key Retirement Solutions data reveals.

This is up 11% from the 55% share of all deals sold that drawdown products accounted for over the whole of 2011.

Total lending rose 1.7% from £213.48m in Q1 2011 to £217.1m in Q1 2012 and plan sales rose 6.4% to 4,508 in the three months compared with 4,237 for the same period of 2011.

Growth in plan sales was nearly four times faster than growth in total lending underlying how increasing use of drawdown is driving growth across the equity release market – KRS’ figures show £83.8m of drawdown funds was not used in the quarter.

Dean Mirfin, group director at KRS, says: “We were critical in January that not enough was being done to promote drawdown.

“Even representing 66% of all equity release business completed over the quarter it’s still not where it should be but it’s a hell of an improvement.”

Home and garden improvements remained the most popular use of equity release cash – 57% of customers used some or all of the cash for that with 33% using money to clear debts and 31% to help fund holidays.

Across the country six out of 12 regions saw growth in the total number of plans sold with the North seeing growth of 65% and the East Midlands 53%. Wales saw a 13% fall in sales.

The biggest growth in total value released was in London where total value increased by 45.7% while the East Midlands saw totals climb by 43.7%. In total four out of 12 regions saw increases

Sources:

Mortgage Strategy

Key Retirement Solutions

This article, Equity release drawdown sales increase in Q1 by 11%, brought to you by What Is Equity Release.

The industry has spruced up its act, but for many people there are still better alternatives, writes Julian Knight in the Independent on Sunday

It’s easy to see why so many people regard their home as their pension. As a country we have £3 trillion – that’s a three followed by 12 noughts – tied up in housing. With just over £1trn of that mortgaged, it’s still an unimaginable sum of clear wealth.

Enough, in fact, to bail out a couple of the most spendthrift eurozone countries. But how do you tap into this wealth safely and in the most cost-efficient way?

Downsizing?

One option is to downsize – sell up, buy somewhere smaller and pocket the difference; happy days. But for many, the idea of selling the family home, with all those memories and friends nearby, just doesn’t suit. It also costs a lot in stamp duty and other fees. For others, in this moribund market downsizing is a non-starter.

“Downsizing is not an option in large parts of the North and Northern Ireland as the property market is stuffed and there aren’t the transactions,” says Steve Laird, a director of Carrington Wealth Management.

Equity release?

One possible alternative is equity release. This has had some bad headlines over the years, with banks offering products in the 1980s and 1990s which proved to be a rank bad deal, leading to people effectively giving away their homes for relatively small amounts of money or ending in negative equity in their twilight years. The industry – now shorn of the big banks and down to key, specialist providers – has been cleaning up its act, offering a no-negative-equity guarantee and building a new generation of products which are more flexible and price-transparent. But the spectre of mis-selling still lurks, ironically because of regulations meant to protect consumers.

Matthew Clark, a chartered financial planner at Thomas Westcott wealth management, and a specialist in retirement planning, says: “What is really worrying me is that the banning of commissions on the sale of investments, due to come into place at the end of the year, will lead to lots of less-scrupulous financial advisers moving in on equity release. As they are considered mortgage products, they are not covered by this ban.”

This worrying development could be happening at the same time as a surge in demand for equity release. For instance, a recent Independent on Sunday investigation showed upwards of 250,000 people will reach retirement still owing substantial sums on interest-only and endowment mortgages over the next decade.

People who use equity release fall into three categories

“I would put people who take out equity release into three categories,” Mr Clark says. “There are those who really need the money to pay off debts, those who are asset-rich but income modest and those who are actually quite wealthy and use it as a means of inheritance tax planning,”

Vanessa Owen, a director at LV=, one of the UK’s biggest providers of equity release, says that common reasons for equity release relate to the upkeep of the household. “It’s expenses such as roof or essential home repairs or paying for in-home care which often prompt people to take the plunge,” she says.

A smaller minority take out equity release to support their children. “We see cases where parents use the lump sum for university fees or to help their child buy their first home.

“It’s like unlocking an inheritance a little early,” Ms Owen added.

Three equity release options

Those looking at equity release have three options – a lifetime mortgage, a home income plan or a home reversion plan.

A lifetime mortgage is in effect a home loan where the interest builds up over the term and then is paid off, together with the capital sum, when the house is sold or the owners move into a care home. The key disadvantage is that it is a very open-ended agreement and interest rates can be high, relative to a standard mortgage. However, lifetime mortgages can be flexible, offering a draw-down facility so borrowers can take their money in tranches when needed, and only pay interest from the moment they take each tranche.

Another innovation is the launch of products geared to people with medical conditions likely to shorten their life. Those who may live only a few more years due to, say, a heart condition, are allowed to draw more money because it’s less likely the loan will run so long that it swallows up the value of the property.

“Because of such flexibility this type of equity release is proving more popular,” Mr Clark says.

Home income plans, on the other hand, are declining in popularity. “In effect, you exchange a proportion of your home for an income for life. The problem is that annuity rates are so low and these plans can be expensive and lack transparency. I don’t recommend these,” he says.

Home reversion plans are similar to home income, although there is the option to take a lump-sum payment instead, but Mr Clark urges caution. “The difficulties emerge when you invest this lump sum. Who is to say that the performance will be good and the investment time period relatively short? In addition, if there are concerns about inheritance tax, then having money invested alongside the house doesn’t really do much to help avoid it,” he says.

Age restrictions

In terms of age restrictions, some equity release schemes start from age 55, but more usually customers are in their mid-60s and upwards. The amount of money and income that can be gained depends on age, and the maximum proportion of a home that can be signed away to the equity release provider varies markedly. The older you are the more of your property you can unlock, but, as a rule of thumb, most loans are based on between 25 and 40 per cent of the property’s current value.

Talk to the family

In addition, with lifetime mortgages being more expensive, a standard home loan borrower can expect to see the amount they owe double in little more than a decade. Carrington’s Mr Laird says this makes it crucial to get the family on board. “It’s not just a matter for the borrower, but for their potential beneficiaries,” he says.

“They should be consulted and independent financial and legal advice taken.”

“Overall, though, for me, equity release should be a last resort. If you make proper, provision for your retirement through investments, savings and pensions you can avoid this expensive option in later life.”

Source: Independent on Sunday

This article, Cleaned-up equity release: Handle with care, brought to you by What Is Equity Release.

Equity release advances by Safe Homes Income Plan (SHIP) members totalled £199.1m in Q1 of 2012, an increase of 10% on the same period last year, when they totalled £181.6m.

The number of plans also increased year-on-year by 6% to 4,057 from 3,838 in Q1 2011. Typically, SHIP sees a fall in the number and value of plans sold between Q4 and Q1. This is because festive season holidays and consumer desire to start the year as frugally as possible, hits sales. This year has been no different and the trade body saw a fall of 8% on the last quarter in terms of value of plans and volume of plans.

Increase in customers choosing to access their equity in smaller tranches

The proportion of customers choosing to access their equity in smaller tranches has increased over the past quarter. Drawdown mortgages now account for 67% of the market, followed by lump sum mortgages 32% and home reversions 2%.

This increase in popularity of drawdown mortgages over the last quarter, to the highest level since Q3 2008, is likely to be the result of more people choosing to use equity release to supplement a monthly income, rather than pay for one-off expenditure.

90% of equity release schemes sold via financial advisers

The proportion of equity release plans sold through intermediaries remained level with last quarter at 90%, at a value of £179.5m, and compared with direct sales of £19.6m. This remains at the highest level since SHIP started tracking this data in Q1 2003 and continues to reflect the importance of intermediaries in the market.

Andrea Rozario, director-general of SHIP, says: “These figures are extremely encouraging and show that the market is continuing to grow steadily, year on year.  Furthermore, the increase in the number of customers electing to drawdown their housing wealth in stages reflects the growing awareness for the different uses of housing equity – such as supplementing an existing income.

“This year is a significant and exciting one for SHIP, as we expand our membership to include members from across the equity release industry.  This will allow us to provide an even more comprehensive look at equity release sales figures in the future through the expansion of data available from new members.

“These figures show that there is a growing appetite amongst consumers for equity release products, and by bringing together organisations from across the industry we will ensure that we are well placed to meet this demand.”

Sources:

Mortgage Strategy

SHIP

This article, 10% increase for equity release sales, brought to you by What Is Equity Release.

Turn2us is running Benefits Awareness Month throughout April, a nationwide media campaign to encourage everyone to check their benefits entitlement.

The charitable service has highlighted that 13.5m people in the UK live in poverty yet over £19 billion goes unclaimed in welfare benefits each year.

Free Benefits Calculator

As part of Benefits Awareness Month they have built a free Benefits Calculator to help us find out what financial help we might be missing out on.

Just visit Turn2us to use the calculator as well as read their research and statistics about welfare stigma and other barriers to claiming.

Really helpful resource, please share with your friends and family.

And, it would also be good to get a benefit check carried out by a free advice agency such as your local Citizens Advice Bureau and/or talk to your local council. They should not only be able to tell you what benefits you qualify for, they should also be able to help you with the application process.

Get professional advice

If you are looking to find funds to support you in your retirement, releasing equity from your property, together with home equity release schemes, are possible avenues to consider. Advice should be sought from an FSA-registered professional independent financial adviser who is qualified to advise on equity release, as personal circumstances will affect how much any individual will receive and what they qualify for. You may also want to consider talking to a specialist equity release solicitor – especially where you wish to leave part of your estate to your children.

Sources:

Kathryn at http://www.greypride.org.uk/

Turn2us http://www.turn2us.org.uk/

This article, Considering equity release – are you benefits aware?, brought to you by What Is Equity Release.

David Borrowman, Equity Release Solicitor

When couples first buy houses often everything is jointly paid. Many couples therefore have the terms of the title to the property written in such a way that on the death of one party the house is automatically fully owned by the other. This ownership form in Scotland is called “jointly with the survivor” and in England “joint tenancy”. This form of ownership seems logical and sensible and it is still probably the way most couples take title.

However, the older a couple becomes, the more this form of title can perhaps bring with it an unwanted risk. That risk is that one spouse may go into care and the house may be included in an assessment for payment of care costs. The risk arises because of how the means test for care costs works. Houses are not included in an assessment if the spouse of the party going into care remains living in the house.

So far, so good. If the person in care dies first then the house will never be included in a care assessment. The problem arises however if the person not in care dies first.  In that situation the house transfers automatically by the title and is owned by the person in care. The house will then be taken into account in the care means test. This could mean that the house may have to be sold to pay for care – depending on other financial matters of course.

Generally speaking, therefore, it is better for older couples not to hold title to their house title in this way. Couples can change the title to ensure the house does not automatically pass to the survivor on death of one party. Rather the property passes by their will to whomsoever the person chooses. At the same time as changing the title the couple make wills in favour of each other.

Once the title is changed, as soon as one of the couple goes into care, the other changes their will to leave their share of the property to another party – usually children. Then if the party not in care dies first only half the house can be included in the care assessment. If the party in care dies first  the house is never in the care assessment.

Our average equity release clients are in their early seventies and healthy. And, while we are dealing with the equity release scheme – and the titles to their property – it is therefore, a perfect time for couples to take stock and think about their house title. Relatively cheap and simple steps to change the title and wills taken at the point the equity release is taken may go a long way to saving a very valuable asset for the family.

Note: The law may be different in England and Wales and therefore clients should seek specific advice from a solicitor before taking any action.

This is a guest post from David Borrowman, who is a Senior Partner of Caesar and Howie, a law firm in Scotland which provides independent expert legal advice to those who wish to release equity from their home. Caesar and Howie is a member of the Equity Release Solicitors’ Alliance (ERSA).

This article, Equity release, house titles, care costs – what couples need to know, brought to you by What Is Equity Release.

Good news for older homeowners in the UK. Greater consumer education around the benefits of equity release is vital for market growth in 2012, research among key industry figures carried out by SHIP reveals.

Over half of respondents (52%) worried that lack of consumer understanding would hamper the growth of the equity release market and 41% felt that lack of consumer confidence in these products prevented more consumers from using their housing equity.

Equity release advisers (63%) were particularly worried about people’s understanding of the products.

The single greatest thing that industry figures wished consumers understood was that as their largest asset, their home should form part of their retirement planning (51%).

The fact that products are safer than before (27%) is also a key feature that consumers should be encouraged to understand.

However, while consumer perception remains a concern, respondents saw some key strengths in the industry.

Almost two-thirds (58%) of respondents felt that equity release fulfilled a growing consumer need, and 49% suggested that the changing face of retirement would lead to market growth.

Robust regulation which safeguards customers (46%) and passionate advocacy of these products by providers and intermediaries alike (32%) were also seen as key strengths.

Educating consumers as to the benefits of equity release was seen as a key task for SHIP going forward.

Indeed 23% said SHIP needed to continue to educate consumers, 18% wanted SHIP to use the combined influence of the membership to tackle barriers and 16% felt equity release should be promoted as a retirement planning tool.

Almost half (47%) predict that the market will grow and return to more normal numbers, possibly in anticipation of greater government engagement with the industry (43%), leading to a boost in consumer awareness of the products and their uses.

The retirement landscape and consumers’ needs are constantly evolving and 37% believe that product innovation to meet these demands will make equity release more attractive to consumers.

Over a third (35%) believe that the market will grow with the emergence of new entrants to the market.

Andrea Rozario, director general of SHIP, said: “As SHIP prepares to open up its membership to the wider equity release industry, this research reveals that the majority of stakeholders consider the lack of consumer understanding to be a real barrier to the market living up to its true potential”.

“This research provides SHIP with a clear mandate to prioritise consumer education and engagement with the industry as part of its new structure”.

“As people’s retirement expectations change and the need for tailored individual solutions grows, there is a huge opportunity for SHIP to position this industry to help people make the most of their retirements”.

Source: Mortgage Introducer

This article, Equity release trade body SHIP to focus on consumer education, brought to you by What Is Equity Release.

The government should support the use of equity release in funding retirement says 45% of over 50s, research by Key Retirement Solutions has revealed.

More than one in three over 50s said that tax breaks would encourage them to use equity release.

The KRS pensioner property equity index revealed that over 65s owned £749.45bn of property without mortgages which could potentially be used to boost retirement income.

Support for the use of equity release in retirement has built recently with think tank The Smith Institute and the Financial Conduct Authority chairman Martin Wheatley both backing the use of property wealth to help fund long-term care.

Source: Mortgage Introducer

This article, Over 50s call on UK government to back equity release, brought to you by What Is Equity Release.