Equity Release Schemes – a gentle stream or a raging torrent?

March 5, 2010 7:37 am Published by

Equity Release Schemes – a gentle stream or a raging torrent?

It is a situation on which solicitors are often asked to advise. Shall we release some of the money tied up in our house so we can buy a new car, take that once in a lifetime holiday, lend the money to our children and so on?

The answer to that question is not always a resounding ‘No’. As with many questions that solicitors are asked, the answer depends on the clients’ situation and the urgency of the need to raise money.

One married couple client of mine live in a really lovely house and has taken out quite a considerable sum of money by means of an ERS to help his daughter buy a flat in London. It has meant that they can remain in their wonderful family home whilst still being able to help their daughter.

There is of course the day of reckoning when the loan will have to be repaid, probably when the couple decide the house is just too big and expensive for them to live in. They will find that if the ERS was taken out 10 years beforehand they will have to pay back twice as much as they borrowed. In the past this has been mitigated by the sharp rise in property prices.

Another married couple for whom I acted merely wished to pay off their existing repayment mortgage as the wife was retiring and their income was about to drop. They did not want to move and their only daughter had lost touch with her parents many years earlier. They felt that an ERS was the answer to their needs and I agreed with them.

As a general rule of thumb, an ERS is more suitable for someone with no close relatives who wishes to be able to carry on living in their house for as long as possible and is not too bothered about what will happen afterwards.

The main point is to make sure the client discusses the Scheme with their family (if they have one) and is absolutely determined to go ahead. There is no easy way to unscramble an ERS after it is in place apart from moving house –the very act that the ERS was designed to prevent.

There are several different types of ERS and some are in my opinion better than others. If you are thinking about this way of solving your financial problems (even if this is only in the short term) do take time to consider all the advantages and disadvantages of the Scheme in question. Make sure you have understood the long term implications for you and your heirs.

As in all such matters, the rule must be take professional advice before you sign on the dotted line.

John Riddett can be contacted at Blocks Solicitors Telephone 01473 230033

The above is general comment only and individual advice should be taken

Categorised in:

This post was written by blocks_admin