How does SHIP (Safe Home Income Plans) Provide Protection to Equity Release Customers?

Safe Home Income Plans (SHIP) are one way of protecting equity release customers. The SHIP code of conduct means that any organisation that works with SHIP in offering equity release schemes must abide by a series of rules which ultimately protect equity release customers. Therefore for any individual or couple who are considering committing to an equity release scheme, it is important they deal with scheme providers who abide by these rules.

Equity release allows people to access some of the equity within their homes without having to sell their property. This is ideal for retired people who wish to have access to some of their equity and yet retain their own property.

A key part of the SHIP rules state that home owners must have a lifetime residence guarantee for their property. This gives the customer the peace of mind that they will always have a roof over their heads.

This rule works in two ways and is based on the equity release plan the homeowner takes out. A home reversion is a sale of part of or your entire home. Typically when a house is sold you move out. Under home reversion you are given a lifetime tenancy agreement which includes any person living in your home that is named in the home reversion contract.

Unfortunately anyone not 65 or older living in the home may not be included. A person that is still young such as children you have living with you will not be included either. The good news is the tenancy agreement requires no rental payment. You live rent free until you decide to move to a nursing home/care facility or upon your death.

For lifetime mortgage releases the SHIP code of conduct ensures you can remain in the home until you decide to move or your death occurs. It means even if there is a negative equity situation or you live beyond your life expectancy the provider cannot demand you move out, sell the home and repay the mortgage. Only if there is a clause in the contract stating a specific period of time like 5 years on the mortgage for repayment will you need to find the funds to repay the mortgage or sell the property. At this point any value in the home that is left can be used to move to a new location or into a care facility.

The criteria laid down by SHIP also stipulate that providers must be completely open, clear and honest about their contracts. The contract must allow the home owner to change property to another suitable property without any financial penalty being imposed.

This does not mean penalties do not exist in the contract. SHIP does allow for early repayment penalties. If you pay off the loan within a certain period of time you may have to pay a penalty along with the amount owed. If you transfer the mortgage to a new property this avoids the penalty fee.

Perhaps the most important part of the SHIP Code of Conduct in the current depressing housing market is that customers are protected by a 'no negative equity' guarantee which means that even if the property price slumps, a customer can never owe more than the value of the home.

Negative equity is certainly a worry after the end of the noughties and the beginning of the new decade. The UK saw two recessions which have only started improving recently in reference to the housing market. Quite a few areas are still in a negative equity situation with their homes. Since you have a protective clause on your house, you can feel certain your family will not have added pressures to make a payment to the equity release provider.

Disadvantage of Equity Release
A main disadvantage to the equity release concept is inheritance. While you can be assured of no penalties for moving to a new property, a negative equity clause, and money to live out your retirement, there are issues with leaving cash behind for your relatives and friends. When the home has to be sold to cover the mortgage and there is a negative equity situation, your family receives nothing. If the family cannot pay the loan with other funds but there is no issue of negative equity then they can at least gain a little cash. Unfortunately most schemes mean the family home is sold.

If you are considering an equity release scheme it is advisable to select one which adheres to the SHIP Code of Conduct - These schemes can be accessable here.

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