Pensioners turning to property to fund retirement are being urged to use equity release as a last resort.
Equity release has grown in popularity over recent years becoming a more mainstream retirement solution – as rises in property values saw many pensioners sitting on large amounts of property cash.
Falling house prices and aggressive selling of equity release by insurers, banks and building societies, set off loud warning bells. Which? is warning that equity release products are expensive, inflexible and leave people with little or no equity in their home, so limiting choices later in life when they may need to pay for care.
Pensioners are warned any money released from schemes could also affect the amount of means tested benefits they are entitled to.
Philip Spiers, co-author of Which? guide Care Options in Retirement, says: “Equity release might seem like the solution for any pensioners struggling to make ends meet this winter. These schemes provide income while enabling you to stay in your own home. Circumstances can change and leave people without enough money remaining to fund alternative accommodation or care, along with hitting entitlements to benefits. Anyone considering equity release should do so cautiously – and only after exhausting other options. In all cases, independent, professional advice should always be sought."
Before turning to equity release, Which? advises people to first consider downsizing to a cheaper property, use existing savings, or even borrow from family who can be paid back when the property is eventually sold. People struggling with finances should also check their eligibility for state benefits or grants to assist with the cost of living.
Which? also warns that while all Safe Home Income Plan (SHIP) approved equity release schemes allow the plan to be transferred to a new property, few lenders consider sheltered housing or retirement homes to fit their criteria.
The top tips:
- Avoid equity release if you can.
- Do not be taken in by flashy television adverts or pushy sales people.
- Always get independent advice.
- With banks and insurers going bust, now is not the time to take a risk.