The following post is a guest post from Houston, Texas area real estate developer and entrepreneur Tracy Suttles. Tracy can be best contacted for questions, comments and concerns on Twitter at @tracydsuttles.
There are a number of different types of Equity Release Plans, but they all basically allow people over the age of 55 to release some of the cash tied up in their homes. So what are the advantages and disadvantages of doing this?
The Advantages of Equity Release Schemes
The money raised can be used by older people for anything they want by could otherwise not afford. They may opt for home improvements, a dream holiday, or a new car. Some decide to help their family in their lifetime, rather than leaving them a house many years down the line. Others simply use the extra cash to give themselves a better standard of living.
Individuals continue to own their own homes, except with a Home Reversion Plan, where they exchange the ownership of the property. They can still move home, at least within the UK, taking the plan with them. They can, if they wish, protect a proportion of the property, guaranteeing that something is left for their heirs.
The Disadvantages of Equity Release Plans
By releasing funds which would otherwise remain in the property until an individual’s death, an Equity Release Scheme will reduce the size of a person’s estate and therefore the amount that can be left to their children or other beneficiaries. Since many people want to pass their houses on to their heirs, the plans should be considered carefully if this is the situation.
Additional funds made available by equity release may affect an individual’s entitlement to means-tested state benefits. Therefore anyone who is receiving any kind of top-up benefits above and beyond the state pension should take advice as to whether an Equity Release Plan is the best option for them.
While all Equity Release Schemes allow the individual to move house, this is only within England and Wales. Scotland has some different regulations, and if someone decides to move abroad, the plan would need to be repaid. Therefore these plans are perhaps only suitable for those whose lives are reasonably settled. While this probably applies to most older and retired people, it is not the case with everyone.
Therefore, while Equity Release Schemes can be a good idea for many older people, they are not suitable for everyone. Anyone considering this option as a means of raising cash in retirement should think carefully and take expert advice before going forward.