Karl Pemberton : Attractive plan, but take advice (From The Northern Echo)

Karl Pemberton : Attractive plan, but take advice

8:47am Friday 20th February 2009 in Search

THERE are many retired people who manage on a small pension and limited savings who also live in properties that, even after recent house prices falls, have soared in value over the years.

In this instance, one increasingly popular solution is equity release plans, often referred to as lifetime mortgages, home reversion or home income plans.

These schemes essentially allow you to borrow money against the value of your home, often to provide you with an income, with the debt being repaid from the sale proceeds after you have passed away.

These schemes can be seen as very attractive in the current climate and are certainly beneficial for the right type of client.

However, it is vitally important that you are aware of the full facts and take independent legal advice before entering into the contract. Age Concern and the Financial Services Authority also recommend taking independent financial advice before proceeding.

The benefits are they provide you with a lump sum, a regular income or both to boost your retirement fund. The money released is free of tax and you do not have to move or sell your home to unlock the equity you have tied up in it.

With reputable providers, there is also a rock-solid guarantee that you will be able to continue to live in our home until the day you die, and in many cases still be able to leave something of the property’s value to your family. Another significant use of the scheme can be to cut inheritance tax, which presently kicks in at 40 per cent on everything left behind over £312,000.

The pitfalls are that with such a scheme, your income may increase and means-tested state benefits could be reduced or lost altogether. They are not always cheap to establish either, therefore you must consider whether moving to a less expensive property might be the cheaper option.

When considering this option look carefully for plans carrying the Ship logo (Safe Home Income Plans).

Ship is an industry body set up to promote safe equity release schemes. Companies who are members provide you with a number of guarantees, including: you will have the right to live in your property for life; the freedom to move to an alternative property without penalties; and that you will never owe more than the value of your home.

There are many options to consider and your decision should not be taken lightly, so my advice is to seek independent advice from your solicitor and financial advisor.

■ Karl Pemberton is director of Active Financial Services, of Guisborough, east Cleveland. He can be contacted on 01287- 632367 or through activefinancialservices.co.uk