Which? care guide for pensioners warns against equity release

Pensioners struggling with their finances should only turn to equity release schemes as a last resort, a new guide from Which? warns.

The warning from the consumer watchdog comes with the promotion or expansion of equity release schemes being considered by the government as a funding option to meet the future costs of long-term care and support, in its current public debate on the issue.

The guide, Care Options in Retirement, advises that equity release agreements can cause major problems if a homeowner’s circumstances change. For example, if someone decides to move into sheltered housing, their equity release loan might have to be fully or partially repaid with the proceeds of the house sale.

Any money received through equity release could also alter the amount of means tested benefits pensioners are entitled to, Which? adds.

Homeowner loan

Equity release schemes allow a homeowner to take out a loan secured against their property. For pensioners, the apparent advantage of this over a remortgage is that equity release loans are designed to be lifelong, and so do not require monthly repayments during the homeowner’s lifetime.

The Which? guide recommends other options for consideration before turning to equity release schemes. These include downsizing to a cheaper property, using existing savings, or even borrowing 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, recommend the authors.

Deferred Payment Schemes

In addition to the many private lenders that offer equity release schemes, each of the UK’s local authorities also has a scheme in place. The local authority plan is called the Deferred Payment Scheme and is designed to enable care home residents to fund part of their care fees by releasing capital from their former home, without having to sell the property.

The interest free loan is repaid once the property is sold.

Such schemes are usually means-tested and only available for people who are permanently moving into – or already living in – a care home.

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