You only have to look at the current state of the pension system. We are going to have to work longer and face the prospect of our pensions being reduced by volatile stock markets and what seems to be one financial crisis after another. For some years now people approaching retirement have been looking at ways of securing their futures whilst still having control over their own financial affairs. Many people are turning to equity release schemes as a way of freeing up cash from their homes. Nowadays there are many different types of these schemes available but put quite simply a company will allow you to take out a loan against your house that is repaid when you die.
This may sound to good to be true but beware the devil is in the detail. Depending on your age most companies will not want to give you a figure of more than 30% of the value of your home. in other words if you are aged 60 and have a house that is valued at £100,000 you will be able to get around £30,000 in equity released from your home.
The company will then be the sole owner of your property with you being able to stay in the house without paying any Ground rent sales until you die. This is called a life tenancy and is different from the status that a protected tenant enjoys as you will be living their rent free. The older you are the more equity you can release from your property. The basic idea is that the older you are the less time the company has to wait before they can get their hands on your home and sell it. These schemes are a great idea if you just want to stay in the house forever without paying any rent but should be well thought through before signing your house away.
As I said there are many different types of equity release schemes being offered these days by reputable companies and some will be more generous than others. Ultimately you will be selling you house for a percentage of it’s value for the benefit of living there rent free forever. If you are eighty years old you may be able to release equity from your home in the region of say 40% or 50%. The younger you are the less money you will be able to receive. There are many companies that advertise on the internet that will probably be able to give you a figure over the Sell freehold but some of the more reputable firms will probably want to come along and carry out a valuation etc. If you are living in a block of flat you will still have to pay the Ground Rent and maintenance charges which also need to be taken into account when calculating your figures.
As a consumer and taxpayer I can’t help but feel that it is very easy to be ripped off by the very companies that we have placed our trust in. For example in the 1990′s I was advised to take out an endowment mortgage. It wasn’t until quite recently that I realised this was a big mistake and that I should never have been advised to buy this product. I was in fact badly advised by a financial advisor to take out this endowment policy that has cost me a lot of money.