A brighter outlook for unlocking the value in your home

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The Independent Online

It's a rapidly growing market, expected to be worth more than £6bn by 2008, but it's also one shrouded in controversy.

Equity release is certainly a product that fulfils a need. Among the burgeoning ranks of elderly homeowners in Britain are many who struggle on inadequate pensions, have little in the way of savings or investments but are living in properties worth hundreds of thousands of pounds. With equity release, they can unlock some of this money.

But the rise of these schemes has been accompanied by an escalation in misgivings. Last year, an investigation by City regulator the Financial Services Authority (FSA) discovered that two thirds of advisers didn't properly explain the disadvantages of equity release, such as high interest rates and mounting debts. And members of the Association of Independent Financial Advisers recently admitted that many are so concerned about potential mis-selling that they actively avoid discussing equity release.

Now, however, there are signs that the market could be sorting itself out. As new players enter the fray to exploit the rising demand so improved offers are being made, says financial analyst Defaqto, which has just published its annual report on equity release. These include better interest rates and more flexible options for taking the money.

In essence, there are just two types of equity release loan: a lifetime mortgage and a home reversion plan. The former is regulated by the FSA and uses your home as security for a loan. This is repaid (with high interest rolled up and added) on the sale of the property when you die or move into long-term care.

With home reversion plans - to be regulated next year - you sell part of your home to an investment company for cash, usually at a discount. The lender will be reimbursed when the property is sold, with the rest of the proceeds going to your heirs.

Aside from the mis-selling concerns, these deals have long been regarded with suspicion for favouring the lenders much more than the homeowners. However, greater choice and innovation in the market now seem to be offering better value.

Among the new ideas on offer is a home reversion plan from Partnership Home Loans that pays out more to those who are suffering from serious health conditions. Because of their lower life expectancy, a higher lump sum can be paid.

New provider Retirement Plus has also launched Property Plan, which lets homeowners release the value of their property in phases rather than all at once.

Even with such products, anyone considering equity release should weigh all the options, talk to their family about the impact on their inheritance and get specialist advice. "Two out of three people we speak to decide not to go ahead, and this shows what a hard step it is," says Dean Mirfin of equity-release adviser Key Retirement Solutions.

To protect yourself, make sure your chosen product has a guaranteed "no negative equity" clause, and look for companies that have signed up to the Safe Home Income Plans (Ship) agreement. For a list of member firms, call 0870 241 6060.

David and Pamela Humphries recently released tens of thousands of pounds from their three-bedroom bungalow in Lincoln- shire to pay for home improvements. They took out a Norwich Union fixed-rate lifetime mortgage at an interest rate of 6.05 per cent.

Whatever is left after the loan is repaid will go to their four children. As David comments: "Equity release has made our life a lot easier."

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