Safe Home Income Plans (SHIP) was renamed ‘The Equity Release Council’ in May 2012, but it is still common to see this acronym used. Essentially, SHIP guarantees that the Equity Release plan you are entering into is safe.
You may be wondering: “How does equity release work?” An equity release loan is an umbrella term to describe the situation whereby equity (i.e. money!) can be released (i.e. placed in your bank account to spend) by a type of mortgage being secured against the home. However, unlike other mortgages, monthly repayments are not usually made on equity release plans.
The advantage of equity release for homeowners is to “free up” cash which would otherwise not be accessible as it's retained in the value of their property. An equity release scheme is usually taken during retirement, either as a lump sum (say you want to update the kitchen or bathroom) or to draw down regular payments (for example, you may want to supplement your income when pension payments are insufficient).
For clients, borrowers or financial advisors, the SHIP/Equity Release Council standard provides reassurance that a holistic approach has been taken in ensuring that you have made the right decision in proceeding with a lifetime mortgage or home reversion plan.
As a member of the Equity Release Council, Giles Wilson can provide a comprehensive service for those interested in equity release advice. As well as the transactional element covered by our residential conveyancing team, a member of our private client department ensures you a face to face meeting with the borrower, to discuss the wider implications of your loan.
There are two main types of equity release scheme: the Lifetime Mortgage and the Home Reversion Plan. So, what’s the difference?
There are no monthly repayments in a Lifetime Mortgage and, in most cases, mean interest is “rolled up”. However, you sometimes have an option to make monthly repayments. Throughout, you keep ownership of your home. At the end of the loan period (generally when you pass away or enter long-term care), the interest is repaid by the estate. Possible options include flexibility on how funds can be drawn down, as well as a limit on the amounts, and the possibility ring-fencing part of the value of your home for future inheritance.
Home Reversion Plan
In a Home Reversion Plan, the provider purchases all or part of your home, and a right to live in the property rent-free is given by way of a lifetime lease. Again, cash will be provided by either a lump sum or regular payments. A fixed percentage ownership is retained in the property and this does not change (unless further releases are taken). At the end of the plan, your property is sold and proceeds split according to the percentages agreed.
A financial advisor plays a key role in helping the client decide which equity release plan is best and which particular product. If you are unsure where to start, our team can help to put you in touch with an advisor approved by the Equity Release Council.
Once a suitable product has been decided, our conveyancing team ensure the actual transaction runs smoothly from start to finish. This includes talking through and confirming the terms and conditions of releasing equity from your home, including the limits agreed upon and the dates for completion, so every aspect is to your liking.
Then, our private client team becomes the supporting crew on the SHIP of equity release, checking that the client borrower is “safe to sail” and has considered all parts of the transaction before proceeding.
This may include a review of current family circumstances, any existing will and the impact your equity release loan could have on your loved ones’ inheritance. We feel it is important to take an open approach based on this review, advising clients if alternative routes for getting money, such as borrowing for family, might be more suited to their circumstances. Life expectancy and other potential sources of income or capital are considered, and we discuss the impact on receipt of any benefits or where it may be envisaged that future long-term care may need to be funded, as well as where the equity release can become repayable in circumstances other than on death.
As our private client team is completely independent from both the provider of the equity release and the IFA who may have recommended the product, the discussion we undertake with the client provides an impartial perspective. For both advisors and clients therefore, the SHIP certificate provides confirmation that your equity release scheme has received a full “MOT” before “setting out to sea”.
Giles Wilson is here to guide you along the way, both in terms of the journey itself and the possible end destination. If you would like to contact our solicitors in Leigh-on-Sea and Rochford for helpful advice on equity release, please call us on 01702 477106, or get in touch by email at firstname.lastname@example.org.