Are equity release schemes an alternative to a trust deed?

25th April 2011

In a recent news article Key Retirement Solutions have questioned whether increasing numbers of individuals over the age of 55 may seek to access the equity in their homes in a bid to repay unaffordable debts, but is this a viable alternative to a trust deed?

Many homeowners over the age of 55 will have built up significant amounts of equity in their homes. For many individuals such equity may be impossible to access using other more traditional methods as lending institutions are reluctant to lend to older persons with less of their working lives remaining in order to repay secured debts.

Those in their 50s, 60s and 70s are increasingly taking debts with them into their retirement years, making such financial liabilities extremely difficult to clear. This has forced many in such a position to consider the merits of a protected trust deed in a desperate measure to clear the debts which cannot be serviced from their income.

In reality those homeowners who have paid off a large proportion of their mortgage may well find that a Scottish trust deed is neither available nor an appropriate solution to their particular circumstances. The trust deed itself will require the release of any equity to help repay debts. Without a lending source or a third party source of funds, this equity contribution may not be feasible and might eventually lead to the requirement to sell the property.

Debt rescheduling options, such as a debt management plan or a debt arrangement scheme may be useful alternatives to a trust deed in such circumstances. However, these arrangements can be stretched out over a very long time period.

An equity release scheme, sometimes known as an equity release mortgage, may well be a viable alternative for homeowners over 55 years old who have built up substantial equity.

There are several versions of this type of scheme. Typically they will involve securing a new debt upon a home. This debt may then attract interest but the home itself will remain the property of the owner until such time as they pass away or need to move home. In return, the homeowner will either receive a lump sum (which could be used to clear debt) or an additional income (which could be used to service debt repayments or a debt rescheduling scheme). This is preferable, for many, to entering into a trust deed.

There are negatives associated with such schemes. Many people will be concerned about the significant or total reduction in the value of estate they can bequeath to their children. Interest over a very considerable number of years could consume the full equity value of a home in time. Also the sums of money available are comparatively low to those at the lower end of the age scale at which such products become available.

However, these schemes should not be discounted by older homeowners who are considering a trust deed as a way of dealing with their personal debts. Advice should only be sought from fully qualified professionals on this matter. The complexities of these types of mortgages ensures that professional mortgage intermediaries must gain additional qualifications before being allowed to advise upon them.

For further trust deed information, please do not hesitate to contact our expert debt advisors on 0800 043 7201 for obligation-free advice.

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