Primarily there are three factors where Equity Release will affect your children’s inheritance.

The most obvious of these is the final inheritance your children will receive at the end of the day. 

The defining factors that affect this are: -

1. The original amount borrowed (plus any top-ups)
2. The interest rate
3. The length of time the equity release plan rolls-up over

 Let’s look at these individually.

The original amount you borrow will have the greatest influence on the final balance that will need to be repaid. This will be on the eventual sale of the property, either on 2nd death or the final person moving into long term care. 

Therefore, advice is essential in determining the how much you should borrow initially & also which of the current equity release schemes are most suitable for your circumstances & goals.

The amount you initially take should be minimalised to the anticipated expenditures over the next 12 months. By keeping this to a minimum will reduce the roll-up effect going forward.

This is where Independent financial advice is now essential given the 20+ lenders that are available & of these, each lender can have different plans to offer. 

Therefore with the multitude of plans available only a qualified equity release adviser can offer best advice from the whole of the market. 

With the advent of the drawdown equity release schemes this has helped play a major role in reducing the initial lump sums taken.

The second factor that can effect the equity release balance over the long term is the interest rate. This is determined at the outset as the interest rate will be fixed for the life of the plan.

Therefore, the lower the interest rate, the less interest will be charged over the term of the plan. Interest is compounded monthly or annually & then added to the balance.

A statement is provided annually by the lender to advise the upto-date balance.

Obviously, the selection of the interest rate is paramount to the children’s inheritance. Again, from the multitude of equity release plans available only an independent adviser can source the lowest rate that meets your needs.

The lowest rate currently is LV= at 5.79%

Finally, the duration of the term of the equity release plan will determine the final balance that will need to be repaid by the beneficiaries. There is no specified term imposed by the lender.

The actual term will run from inception to when the house is finally sold, whether this is on death, moving into long term care or if the equity release is settled early.

Again, the longer the term it has to run for the greater the balance will be in the long term. Hence, delaying taking equity from your property is advisable unless this is unavoidable.

Equity releases schemes can now commence at age 55 & the recent statistics advise that the average life expectancy of a female in teh UK is now 81.5 (office for national statistics 2008). With average life expectancy ever increasing in the developed world, the implications of this needs to be considered carefully with regards to the timing of when to take out the equity release plan. 

Advice on these issues can be sourced at Equity Release Supermarket - who are independent equity release experts.

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The answer to this could very much depend on your requirements not only now…but also in the future.

With a combination of a fall in property prices & equity release lenders reducing their loan-to-values, the amounts being raised through equity release has significantly dropped.

So is now the right time?

Well, the current positives for equity release schemes are the lower interest rates currently available. As a consequence the ‘roll-up’ effect over the remaining years has less impact, which results in greater residual estate for the beneficiaries or potentially the availability of further funds in the future for the applicant.

Equity release schemes are more flexible by nature now. Drawdown schemes have now become the most popular form of equity withdrawal, offering the facility of smaller initial lump sum & further funds in the future. Providers are also innovating with the advent of the new interest only equity release schemes from Stonehaven.

So all would seem rosey it seems?

Nevertheless, there are issues currently which are being experienced in the equity release market. Predominantly these are to do with valuations.

Average property values have now fallen in excess of 15% & this has affected the maximum releases on roll-up lifetime mortgage & home reversion schemes.

Particularly affected are clients who are looking to pay off mortgages & credit card & associated debts that may require the maximum advance.

Online equity release calculators are a valuable asset here & assist in solving the most common question asked. However this is only a guide.

Experience has shown that although research can be conducted on potential current property values by utilising property websites, it is down to the individual surveyor to determine the final figure.

This valuation then determines the amount that can be raised via equity release. It is then down to the lenders loan-to-value figures to calculate the mortgage offer to the client.

Consequently, if the valuation is significantly lower, it will also lower the amount that can be released on the equity release application. In certain situations this may be insufficient for the purposes intended & hence the application cannot proceed further, resulting in possible non-refund of the valuation fee.

This cannot be good news.

To limit the loss of potential set up fees, certain equity release schemes offer a free valuation. Also, given the fact that lenders such as Saffron are prepared to offer this & current have one of the highest loan-to-values makes their proposition worth considering.

Obviously, it is imperative that Independent financial advice is sought as with over 20 lenders in the market, professional advice could save £1000’s in the long term.

In essence the people not adversely affected by the current market upheaval would be those taking lower initial amounts & not those stretching for the maximum releases.

For further information on deals available visit equity release supermarkets informative website - http://www.equityreleasesupermarket.co.uk

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