These days, equity release schemes are regulated by the FSA. The trade body is SHIP (Safe Home Income Plans), which represents over 90% of the market, and whose members must abide by a Code of Conduct.

Generally, equity release is an expensive way of raising capital. Certainly, it will not normally be the first resort and alternative ways of raising the money should always be considered. Plus, of course, money received through equity release may reduce eligibility for means-tested benefit, or increase tax liabilities.

There are two main types of scheme:

Home reversion: this is the least popular type of scheme (under 2% of the market), and involves the client transferring the property to the funder in return for an income and/or capital, and a share in the final price. The right to live in the property is preserved by a lifetime lease, with the funding being repaid from the proceeds of sale after death. Such schemes bring certainty, but they are inflexible.

Lifetime mortgage: here there is a mortgage loan, with the interest being rolled up and repaid on death or sale of the property. A lifetime mortgage can release a lump sum, or provide a draw-down facility to release funds when required. Capital can then be invested to provide an income. But, do watch out for early redemption penalties. In practice, lifetime mortgages account for the vast majority of equity release plans, with that market being split equally between lump sum and draw-down schemes.

The SHIP website lists 15 members that offer equity release schemes, backed by the SHIP Code (all such schemes offer portability and a ‘no negative equity’ guarantee, although there is a considerable variation between the different schemes). For that reason alone, expert financial advice is needed. Financial advice can be given either by an independent financial adviser or by a tide adviser. A solicitor should not act unless the client has been properly advised by a financial adviser; if the solicitor has been recommended by that financial adviser or the scheme funder, remember that no referral fee can be paid. While the lawyer’s role will not be to give financial advice, it should certainly involve a review of the financial adviser’s fact finding, so as to ensure that proper consideration has been given to things like investment returns, inheritance prospects, tax and benefits. Basic facts like age, children, likelihood of care, possible need to move homes, are all things that should be checked and confirmed. At the same time, all alternatives should be considered. And do check that the client has the necessary capacity. Needless to say, it is also important to consider the impact of receiving money under the scheme; about a third of pensioners receive an income-related benefit, and more are entitled to one but do not claim it. Having extra income or capital may affect eligibility, and there is no point in taking on an equity release scheme if it will not produce a net gain for the client. See article in [2010] Legal Executive Journal March 36.