As part of the information gathering stage an adviser must establish the purpose of the funds from equity release as it will help determine which scheme is the most suitable. An aspirational borrower will use the equity in their home for extra capital or income to improve an already sufficient standard of living, as opposed to a needs borrower that often has no alternative.

The residential nil rate band is an additional inheritance allowance that can be claimed by a personal representative when a person dies and leaves their main residence (or a share) to a lineal descendant. A lineal descendant is anyone who is  a direct descendant from the deceased, but includes adopted children and foster children.

If the borrower/s enters a part reversion and down sizes, then they must pay the Home Reversion provider the same proportion of the ownership based on the money released through downsizing. 

As an alternative to equity release an individual may consider renting a fully furnished room within their main residence. Under UK tax rules an individual or a couple can rent a room within their own property and receive up to £7,500 in rent tax free. Any amount above is taxed as income at their highest marginal rate.

A Drawdown facility is now the most popular income option from an equity release scheme. Smaller tranches of funds are taken and spent as income, rather than all in one go. This allows for further withdrawals at a later date. This also has the additional benefit that more equity remains in the property for longer and less interest rolls up on a lifetime mortgage.

One of the disadvantages of a home reversion plan is that the property owner loses ownership of the property as they sell it to the reversion provider for less than the market value and become a lifelong tenant.

If both parties entered the scheme together then it will remain in force until the remaining party either dies, moves into long term care or moves to another main residence.

Mortgages secured against a main residence are regulated under the Mortgage Conduct of Business (MCOB) regulation. Home reversion schemes have been regulated under MCOB rules since 2007. Unsecured credit is covered under the Consumer Credit Act and the new Consumer credit sourcebook (CONC). The FCA regulate most types of lending where an individual or a small unincorporated business borrow, but the rules are split between MCOB rules for regulated mortgages and CONC for unsecured loans.

Within FCA regulation the definition of a regulated mortgage including Equity Release schemes states that 40% of the dwelling must be occupied by the borrower/s for residential purposes.

As part of the information gathering stage an adviser must establish both hard and soft facts to provide suitable advice. Hard facts: These are defined as tangible; people and items. Anything that can be proved then and there (matrimonial status, address, age, loan size etc.).  Soft facts: These can be defined as the client’s objectives, plans and how they feel.