“Especially in the North, people tend to be relatively asset rich, but cash poor, so there is plenty of perceived need, as well as the scope available for them to release funds from their property, using this type of scheme. According to various reports, the market is already worth up to £50 billion. And, with more and more adult children encouraging their retired parents to release the equity available in their homes, this figure is estimated to
double in the near future,” said Frankish.
According to the Financial Services Authority, equity release schemes will fall within the rules governing the provision of mortgage advice from 2004 onwards. However, so-called reversionary schemes, where the property is actually sold to the lender, which then releases back a percentage to the householder - who then becomes a tenant for life - will fall outside the scope of the regulations.
According to Frankish, this means that reversionary schemes need to be monitored very carefully. “Because they will end up being tenants, homeowners looking to use a reversionary facility should make sure that there are safeguards built in to the agreement, to stop them being evicted from their property. They should also check to see that there are guarantees against them falling into negative equity,” he warned.
