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Pensioners struggling to make ends meet should only turn to equity release if there is no other option, a Which? guide entitled 'Care Options in Retirement' has claimed today.
With rising living costs and the increased cost of long-term care, equity release may seem like the answer to financial problems faced by people after retirement, said the consumer watchdog. But it added that the schemes can be very expensive, inflexible and leave people with little or no equity in their home. It can also leave pesnioners with limited choices in later years and affect their entitlement to benefits, said the report.
'Care Options in Retirement' recommends that before turning to equity release, people first consider downsizing to a cheaper property, use existing savings, or even borrow from family who can be paid back when the property is eventually sold. People struggling with finances should also check their eligibility for state benefits or grants to assist with the cost of living.
Philip Spiers, co-author of 'Care Options in Retirement' says: "Equity release might seem like the solution for any pensioners struggling to make ends meet this winter. These schemes provide income while enabling you to stay in your own home.
"However, if your circumstances change you might not have enough money remaining to fund alternative accommodation, and money received through equity release may seriously alter the amount of benefits you are able to collect. Anyone considering equity release should do so cautiously - and only after exhausting other options. In all cases, independent, professional advice should always be sought."
But Safe Home Income Plans (SHIP), the trade body for equity release, has slammed the guide. Director general Andrea Rozario, said: "Equity Release is most definitely not an option of last resort but a logical consideration for those considering how to fund their retirement. It offers a guarantee that older people can stay in the homes they know and love, with no monthly rent and a no-negative equity guarantee.
"Equity release products offer increasing flexibility - there are now products that offer the security of fixed rates with little or no redemption penalties, and recently we have seen rates falling, in stark comparison to the mainstream mortgage market.
"This, coupled with safeguards offered by SHIP members and compared to normal mortgages, not only means that the products are safe, but also incredibly flexible, offering people options that they might not otherwise have considered, which could vastly improve the quality of their lives."
She added, "All SHIP providers recommend that those thinking about equity release seek qualified advice and involve their families in any decision making."
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