What should we consider before releasing equity?
There comes a time in our lives when we all need to consider the future and by that I mean protecting our familiy’s finances. So I’ve turned to will writing expert, Nicolae Trofin to talk about equity.
So what do people generally use released equity for?
“Using the money for home improvements and holidays – that trip of a lifetime – is massive but there’s the other end of the market too, when clients release equity because they have no choice. A couple might have an interest-only mortgage which is coming to the end of its term and be in a position where their existing lender can’t give them anymore so they’re in a nightmarish situation and being threatened with repossession. Often people don’t want to sell or move somewhere cheaper because that would mean leaving all their friends and family behind.
Is it law that a homeowner releasing equity must have a will?
“No it’s not law – it’s just best practice to have a will and also an LPA. To be eligible to release equity, clients have to be at least 55 and typically they’re in their late 60s so it’s all part of holistic retirement planning. And wills and LPAs relate to that too – people ensuring their affairs are in order for peace of mind.”
“I believe that equity release and will writing are going to become more ‘married’ over time, as with the Government’s pension reforms, there’s a lot of work going on to make sure everybody is looking at their retirement in its entirety.”
What sort of problems can clients hit with equity release if they don’t have a will and LPA?
“Well, for couples not having an LPA can cause problems. A good example of that is drawdown products, that’s when a lender gives a lump sum at the beginning. A client might take out £10,000 initially because that’s what they require immediately and then ring fence a certain amount – maybe £50,000 – that they won’t be paying interest against. But for a couple, to draw against that £50,000 – generally in chunks of £2-5000 at a time – both of them need to agree and sign the papers. Also if they don’t have an LPA, and one of them loses mental capacity, that facility is essentially going to be withdrawn as only one of them can make the request. So LPAs are really important in instances like that. Making sure that the spouse and a third party are appointed so that property and affairs can continue to be managed as each family would wish it.”
When taking out equity release products, do you think having wills and LPAs should be written into law?
“I think that would be a little too nanny state – obviously there’s a cost associated with making a will so it has to be down to personal choice. Also there could be people who just don’t have a problem with the intestacy rules and are happy for their money to go wherever, so for them setting down that a will has to be part and parcel of an equity release scheme would be unfair. Although it’s obviously strongly advised to be a good idea to sort it out.”
Thank you, Nicolae Trofin.
Will Writing and Estate Planning Expert