Sabtu, 26 Mei 2012

Equity Release Council's code to safeguard homeowners

Equity Release Council's code to safeguard homeowners

By Stephen Womack

PUBLISHED: 15:42 EST, 26 May 2012 | UPDATED: 15:50 EST, 26 May 2012


Homeowners looking to tap into a combined property wealth of more than £700 billion to give them a decent retirement are being promised more safeguards by a body to be launched tomorrow.

The Equity Release Council â€"  formerly trade body Ship â€" aims to strengthen the code of conduct for its members. For the first time, membership will include financial advisers and solicitors as well as equity release companies. This should mean better protection for older homeowners who want to release cash from their home while retaining the right to live there.

Council chairman Nigel Waterson, a former Conservative MP who was the party’s pensions spokesman, says: ‘More people are considering using their property as part of their retirement finances. This might mean choosing to downsize, renting out a room, releasing equity or doing a combination of these strategies.’

Elaine and Tony Hope used money from equity release to turn their garage into a utility room

Converted: Elaine and Tony Hope used money from equity release to turn their garage into a utility room

Almost three-quarters of homeowners expect to use property as part of their financial planning in later life, according to new research from the council.

Some are planning to sell and move to a smaller home, building on the growing trend to trade down. As the baby-boomer generation hits retirement, those trading down now outnumber those looking to move up the housing ladder.

Property website Rightmove last week reported that 40 per cent of all sellers were now looking to downsize. Others who do not want to move home are relying on cashing in on investment properties, renting out rooms or freeing up cash from their main home through equity release mortgages.

Dean Mirfin, director of equity release adviser Key Retirement Solutions, says: ‘Many of today’s retirees have lived in their homes for 20 to 25 years and have benefited from the huge uplift in value over that period.’ Key’s latest Pensioner Property Index shows that homeowners aged 65 or over are sitting on a combined wealth of £743 billion in the value of their homes and other properties that is free from any mortgage debt.

But only a portion of this wealth can be used to supplement income from pensions and savings. The maximum sum that can usually be taken through equity release is about one quarter of the value of  a property.

Paul Edginton, managing director for South West and Southern England at estate agent Connells, says: ‘It’s a difficult market for downsizers. They’re being squeezed hard on their sales price and are not then left with enough fresh air between that and the cost of their new home to make it worthwhile. We’re seeing a lot of sellers who are being forced to compromise.’

Elaine and Tony Hope are using the funds from equity release to improve their home in Sidmouth, Devon. They signed up to a lifetime mortgage with Aviva last October. 

The rate is fixed at 6.27 per cent. Rather than falling due each month interest is instead added to the sum outstanding. The loan only becomes repayable once they no longer live in the propert y because they have died or have moved into care.

Tony, 67, who is retired after a career as a pub landlord and restaurant manager, says: ‘We could have downsized and moved elsewhere, but we didn’t want to. We love it here.’ Tony and Elaine, 63, enjoy walks in the glorious Devon countryside with their springer spaniels Polly and Barney.

So the couple spoke to an adviser from Key Retirement who recommended the Aviva loan. It allows them to draw up to £56,000 from their semi-detached bungalow, which is worth £250,000.

Tony says: ‘We took about half of what was available â€" enough to pay to convert our garage to a utility room and do some other work around the house. There is more there if we need it.’

The maximum sums that are available through such lifetime mortgages depend on the age of the homeowner.

The younger you are, the less is offered. This is because the mortgage will on average run for a longe r period and so interest costs will mount up higher. Loans offered by members of the Equity Release Council guarantee that the debt that has to be repaid will never exceed the value of the property.

However Mirfin says that only about one in seven homeowners who choose equity release take the maximum advance.

More popular are drawdown loans. Here, borrowers agree a limit or reserve that can be drawn against, but they only take and pay interest on the money they need now. The rest remains in reserve if they want it again in the future.

Major equity release providers include Aviva, Just Retirement, LV= and Partnership.

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As the rate is fixed at 6.27 per cent each month interest is instead added to the sum outstanding. That means Compound Interest Rates DEBT

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This money doesn't exist - it's fantasy derivative cash created by cheap Chinese loans and inflated six times salary mortgages. Allowing this cash to be released into the British economy will be an unmitigated disaster. It has to be stopped at all costs.

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