The industry definition of an equity release scheme is an over 55's mortgage, albeit with no monthly repayments & finally settled on death or moving into long term care.
It is now becoming more apparent that whereas equity release was once considered a lifetime mortgage, people 'temporarily' have the opportunity to take advantage of one of providers' shortcomings in its plan features.
As equity release has been designed to run for the rest of the person's life, lenders have always seeked to include potentially heavy early repayment charges, should the scheme be redeemed early.
This penalty could be either linked to the change in government gilt rates, expire after a set number of years or as we shall discuss; linked to the Bank of England base rate.
It is this feature that has provided a window of opportunity should people over 55 require short term borrowing facilities.
Experience has recently shown that retired clients are now struggling in retirement; income from investments has fallen, annuity rates are not favorable & pensions are falling in popularity with more reliance on fund performance & contributions than defined benefit schemes.
Increasingly more debt is also evident in this age group & control of finances is becoming more difficult to manage in the present economic climate, credit cards & loans seeming the preferred choice.
Nevertheless, there are options available that can resolve these issues – part time work is becoming more apparent to increase retired incomes. Better management of debts & more consumer information being available as the silver surfers become more online savvy.
Advice on the suitability of equity release schemes will primarily discuss all these options & more. Should none of the alternatives be suitable from the client's point of view, then at this point, equity release can be considered as a last resort.
However, another one of these options would be downsizing.
This would involve the emotive issue of selling a property that may have been a family dwelling for a generation. However, in order to raise the necessary funds required this may be the correct solution.
Unfortunately, this option may not provide an immediate resolution.
House sales are eventually beginning to rise, however this is marginal at present & for someone who requires funds as soon as possible, today's marketplace could prove an obstacle.
But all is not lost – & this is where a temporary bridging facility is available & can be provided by a current equity release provider.
Subject to eligibility, the Prudential's equity release schemes can meet this objective.
By releasing equity now with Prudential you would be benefiting from their link with the Bank of England base rate & early repayment charges.
In summary, the Prudential equity release schemes will only levy a penalty should the Bank of England base rate fall from inception to the time of repayment. With this rate at an unprecedented low rate of only currently 0.5%, it is highly unlikely (but not impossible) that the rate would be lower than 0.5% in the future.
It can therefore be safely assumed that if either of the Prudential's equity release plans are taken out, whether it is their single lump sum product or innovative increasing cash reserve plan, NO early repayment charge would apply.
Therefore, this can be great news therefore for people who have debt issues or need access to short term funds & not have it affect their tight budgetary constraints. With no monthly repayments required, clients can raise funds this year & after a 12 month period could repay in full or partially, with only a deeds release fee of £ 105 being levied.
This could tie in conveniently with the property market improving around this period of time.
With Prudential's interest rates currently as low as 6.3%, this is an excellent time to consider this form of borrowing for eligible people over age 55.
So while the Bank of England base rates remains at just 0.5% it would be advisable to consider the Prudential plan as a means of short term borrowing or bridging finance, depending on requirements.
The Prudential's Increasing Cash Reserve plan comes with a free valuation & £ 300 cashback on completion until 31st December 2009.
So all's not so gloomy in the equity release market as some would suggest.