Financial Column - December

Date published: 03 December 2009

When I was a lad, someone in their 60s was ready for the knackers’ yard.

Now I am 55, I see 60 as the new 40 as people are increasingly beginning adventures at this age.

A colleague recently financed a large motor home for a couple of octogenarians who were embarking on a tour of Europe.

The finance was arranged via equity release. In my opinion equity release is a truly fantastic product, providing you are aware of the pitfalls.

It can help the many homeowners who are sat on a small fortune, but are struggling day to day on a meagre pension, or are OK but want to treat themselves from time to time.

Indeed, I have heard of grandparents using equity release to raise deposits to get their grandchildren on the property ladder.

Once upon a time people used to leave their homes to their children, if they had one to leave, but all that is changing.

We are fitter than ever and are living longer so why live like a pensioner from the fifties when there is no need?

In many cases that can be done by making the most of the value of your home.

But instead of selling your home and moving to a smaller property, which is easier said than done in the current climate, an equity release plan allows you to stay put, but cash in on the property’s value.

In practice home owners raise a mortgage on the property and then receive a lump sum to invest or spend.

There’s no such thing as a free lunch and there is interest to pay – but it is added to the debt, which doesn’t have to be paid off until the house is sold – usually on death.

The plans have been around for a while but fell into disrepute a decade ago. But lessons have been learned and today’s equity release plans have built in safeguards. Only deal with a provider who gives SHIP guarantees (which is virtually everyone in the market). The most important guarantee is that of a no negative equity.

You should not get involved with equity release unless you have spoken to a qualified equity release specialist, who should be happy to involve your family should you wish.

I believe it is a fantastic product, but it must be explained in bite size chunks and may not be suitable for everybody, depending on your circumstances and attitude to inheritance.

For more information contact Clive Balchin at James Trickett and Son on 01706 831132.