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Specially designed equity release schemes have become more popular with those in retirement. These schemes work by loaning you a cash lump sum against the value of your house which is then paid out either as a monthly income or as a lump sum.

In the specially designed schemes, the loan taken is paid back when the house is sold - either on death or when you move house. Generally, you pay no interest during your lifetime and this is instead added to the loan until the end of the term. The idea is that you are able to stay in your home whilst also benefiting from its value - but because of the unknown nature of your life expectancy and the cost of setting these schemes up, you will need to be at least 55, have a property that is worth over £40,000 and own the freehold on the property to be Specially designed equity release schemes have become more popular with those in retirement. These schemes work by loaning you a cash lump sum against the value of your house which is then paid out either as a monthly income or as a lump sum.

There are, of course, some downsides to using equity release. First, you reduce or perhaps even cancel out the value of the house which you might otherwise have wanted to pass on to your beneficiaries. In addition, the income you receive could impact both any means-tested benefits you receive and your income tax bill. And, while the cash received from the scheme is tax free on receipt, if you invest that money, any additional income you receive will be subject to tax.

Of course, you can achieve the same effect by simply moving to a smaller house and using the difference to invest appropriately. However, many people prefer not to have the upheaval or want to stay in their family home, say. Equity release can also be a useful way of paying for care home fees if the move into a care home is sudden and waiting to sell a house may not be feasible.

Equity release schemes have been controversial and some can still be expensive, with higher interest rates and fees than a normal re-mortgage. However, three years ago, they were brought under the FSA’s remit so can now only be sold by qualified advisers, which has helped to rid the industry of bad practice. In a housing market which, after a period of sustained growth is now sliding a little and may get worse before it gets better, equity release investors also run the risk that their property will be worth less than their loan. These can offer good opportunities but should be seen only as part of a long-term plan.

EQUITY RELEASE INCLUDES HOME REVERSION PLANS AND LIFETIME MORTGAGES. TO UNDERSTAND THE FULL FEATURES AND RISKS, ALWAYS ASK FOR A PERSONALISED ILLUSTRATION FROM YOUR FINANCIAL ADVISER.