Equity release is a viable option

Mon, 16 Jan 2006

A recent report by Which? magazine concluded that equity release should only be considered as a last resort.

However Key Retirement Solutions claims that the report called ‘Unlocking Equity from your Home’ is misguided and do not agree with the reports conclusions.

Dean Mirfin, business development director with Key Retirement Solutions said "Equity release should be considered alongside other ideas and not after you have exhausted all other options."

The report recommends before considering an equity release scheme, other options should be looked at. These options are listed in the report and include downsizing, borrowing from friends and family, local authority grants and checking the eligibility for state benefits.

On the matter of downsizing the report said, "Although it may be difficult emotionally to leave your family home, moving somewhere cheaper is one of the best ways to free up money fund your retirement.

"The costs of moving are a fraction of the cost of taking out a typical equity release scheme."

The report looks at the cost of downsizing compared with the cost of releasing money through a lump-sum roll up mortgage on a house valued at £35,000.

Which? says if a family looked to downsize to a house valued at £250,000 they would spend on average £20,000 on moving, therefore releasing £80,000 equity and they would not owe the provider anything. However a family looking to release £80,000 using an equity release scheme would still owe £ 343,350 when the house is sold 25 years later.

Commenting on the report Mr Mirfin was critical of the report for playing down the emotional impact of downsizing. He said, "If people want to downsize, it is the cheapest way of raising capital – no one is disputing that, but moving purely for money reasons can also be dangerous."

Mr Mirfin did praise the report for emphasising people seek advice from independent financial advisers prior to embarking down the equity release route.

Key Retirement Solutions conducted their own research which showed 45 per cent of consumers said equity release will help to fund their retirement.

John King, chief executive of Safe Home Income Plans (SHIP), the professional body for equity release providers said downsizing and borrowing from friends and family is not as easy as Which? make it out to be.

He added, "Ship recognises that equity release deals with a potentially vulnerable class of consumer and would always advise clients to look at viable options before taking out an equity release scheme.

"We would stress equity release is not just a last resort option but can allow many to enhance their lifestyles post-retirement by capitalising on their main asset."
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