"Equity" is the word used to describe that part of a house's value over and above any loans secured on it. For example, if a house was valued at £200,000 and had £100,000 loan secured on it the equity is £100,000. If it had no loan secured on it the equity would be £200,000. Equity Release is the process by which the house owners release some of the equity in the house to themselves. See the attached guide.
Many people in Scotland have wealth built up in the form of "equity" in their houses. With many almost unbroken years of house price inflation behind us, this means that many folk in Scotland, particularly those near or past retiral, own a substantial financial asset – their house. Typically their mortgages will have been paid off in full or very nearly so, by retiral age.
However, with increasing longevity and the reduction of pension returns many of those same people find that they are not as well off financially in retirement as they would wish. Consequently to meet people’s financial aspirations in retirement, a number of financial institutions have created financial products called Equity Release Schemes, designed effectively to turn part of that high house value into useable cash for the house owner.
These products fall into two categories "Lifetime Mortgages" or "Home Reversion Schemes". The first type is just a mortgage but with the difference that repayment of the loan and the interest is not made by the house owner during his or her lifetime, but out of the sale of the house after death. The second type is a scheme whereby part of the house is sold to a financial institution at a discounted price with the house owner obtaining that price, and again that share of the value of the house is only recovered by the financial institution after the death of the householder. Whilst part of the house has been sold a "liferent" is granted to the owner allowing lifetime occupation of the house. In each type of scheme the effect is to release money to the house owner for use during that person’s life, with repayment being effected only after death.
There are all sorts of variations of these schemes, but they are increasing in popularity very quickly. At Caesar and Howie we have made it our business to become familiar with the legalities relative to these products, to enable us to assist clients who wish to release equity from their homes. In addition we have forged links with regulated financial advisers who are authorised to advise on those products which are regulated by the Financial Services Authority.