Cash clinic: Parents releasing equity to help children get on to the housing ladder Q Our son and his wife might be purchasing a house and we hope to release equity on our house to assist them. Is this legal and how is it best done? LP St Andrews A Yes, it is legal and many parents are accessing the equity in their homes to pass on wealth to their children while they are still alive. In today's difficult financial climate and the increasingly tighter lending criteria required by banks, one of the main reasons for releasing equity is in order to help offspring get a foot on the housing ladder. All equity release plans basically offer a way of freeing up part of the value of your home, but there a number of ways in which you can do it. They might sound simple, but they take very different forms and whichever one you choose will not be cheap. If you don't want a nasty shock at some point in the future, it is essential to understand exactly what you are getting into before you sign on the dotted line and seek independent financial advice or speak to your solicitor about the contract you are about to enter. If it is not your intention to go back to the beginning with your mortgage and take out a traditional capital repayment mortgage, there are two main types of equity release plan. These are lifetime mortgages and home reversion schemes. Lifetime mortgages Your provider lends you a percentage of your property's value and charges you interest on it. Many will allow you to draw down in tranches up to an agreed maximum to provide increased flexibility. However, unlike an ordinary mortgage, there are no monthly repayments and there's no set term. The interest charged is simply added on to the original sum you borrowed. The loan can continue until you die, when the capital, the original sum borrowed and all the interest must be repaid. You should be aware that this will be expensive and indeed the sum you originally borrowed may double as a result over a ten-year period. It is unlikely that the situation will arise where the amount of the debt exceeds the value of your property. Home reversion schemes Here you are selling a percentage of your home in exchange for a lump sum or monthly income. There are specialist companies who provide this form of lending. Unlike a lifetime mortgage there is no interest to pay on the sum borrowed. You can remain in the scheme until you die or decide to sell up, however, you continue to be responsible for all maintenance costs. When the property is sold, the scheme provider takes their percentage of the sale price, with any remainder passing to you or your estate upon your death. You need to be at least 65 to qualify, and it is extremely unlikely you will achieve the full market value for the percentage of the property you sell. For example, if your home is worth £400,000 and you decide to sell a quarter share, you might expect the provider to give you £100,000. This is not the case and you should expect to receive £50,000 or even less, depending on circumstances. The above options will both provide you with the money you require and are suitable for many people. But make sure you are aware of how the contract operates and seek expert advice. Alan Reid is a partner at Cornerstone Asset Management LLP.