Older Persons Shared Ownership OPSO vs Equity Release: Which Option Could Be Right for You?

Older Persons Shared Ownership (OPSO) vs Equity Release: What’s the Difference?

If you are planning for retirement and thinking about how your home fits into your finances, you may have come across two very different options: Older Persons Shared Ownership (OPSO) and equity release.

At first glance, they can appear to do something similar. Both can help make later-life housing more affordable or allow you to make better use of your property wealth.

In reality, though, they work in very different ways.

For some people, OPSO may offer a practical way to move into a retirement property without having to buy it outright. For others, equity release may allow them to stay in the home they already own and access some of the money tied up in it.

Understanding the difference is important before making any decision.

What is Older Persons Shared Ownership (OPSO)?

Older Persons Shared Ownership, usually shortened to OPSO, is a shared ownership scheme designed for older buyers.

You normally purchase a share of a property, usually between 10% and 75%, and pay rent on the part you do not own.

Unlike standard shared ownership, OPSO usually has a maximum ownership level of 75%. Once you reach 75%, you do not pay rent on the remaining 25%.

This can make moving into a retirement property more affordable because you do not need to find the money to buy the whole property.

The homes available through OPSO are generally designed or designated for older people and may include features such as easier access, lower-maintenance layouts or communal facilities.

Who is OPSO For?

OPSO is generally aimed at people aged 55 or over.

There are also income limits, and you would normally need to be unable to afford a suitable property outright.

If you already own a property, that home would usually need to be sold before completing the OPSO purchase.

For someone who wants to move into a smaller or more suitable retirement property, OPSO can therefore be one possible route.

What is Equity Release?

Equity release works very differently.

Rather than buying part of a new property, equity release is usually used by homeowners who want to remain in the home they already own and release some of the value tied up in it.

The most common form of equity release is a lifetime mortgage.

This allows you to borrow against the value of your home while continuing to live there, subject to the terms of the mortgage.

For many people, equity release is considered when they want to supplement retirement income, repay an existing mortgage, help family members financially or fund home improvements or other later-life plans.

Can You Use Equity Release With an OPSO Property?

This is an important point.

Traditional equity release products are generally not compatible with OPSO because equity release lenders normally require suitable security over the whole property.

With OPSO, the housing association or provider continues to own part of the property, and ownership is normally capped at 75%.

So, in practical terms, someone choosing OPSO is normally taking a different route from someone using a lifetime mortgage on a fully owned property.

What Costs Come With OPSO?

The initial purchase price is only one part of the picture.

If you own less than 75% of an OPSO property, you will normally pay rent on the part you do not own.

For example, if a property is worth £200,000 and you buy a 50% share, you would own £100,000 of the property and pay rent on the remaining £100,000.

Using an example rental rate of 2.75% per year, that would work out at roughly £229 per month.

If you later increase your ownership to 75%, the rent on the remaining 25% may fall to zero.

However, that does not mean there are no ongoing costs.

Service Charges and Management Fees

Retirement developments often come with service charges.

These may cover things such as:

• Maintenance of communal areas
• Gardens and landscaping
• Cleaning
• Lifts
• Buildings insurance
• Communal lighting and utilities
• Wardens or concierge services
• Emergency call systems
• General estate management

Shared owners may still be responsible for the full service and management charges, even though they do not own 100% of the property.

This is why it is important to look beyond the purchase price.

A property may appear affordable at first, but the monthly costs can make a significant difference to your retirement budget.

What About Sinking Funds?

Some developments also collect money for a reserve fund or sinking fund.

This is usually used to help pay for larger future costs, such as roof repairs, lift replacement, resurfacing or other major work.

Paying into a sinking fund can help spread those costs over time, but it is still another expense that should be considered before buying.

Exit Fees Can Also Matter

Another area to check carefully is whether the development has an exit fee or event fee.

These charges may become payable when the property is eventually sold.

Some retirement developments can include deferred fees linked to the eventual resale value of the property.

Because the terms can vary from one development to another, it is important to understand the lease and all charges before committing.

What Happens to an OPSO Property When the Owner Dies?

This is another important area to understand.

If the owner of an OPSO property dies, their share of the property normally forms part of their estate.

However, the person who inherits the property may not necessarily be able to live in it.

If the beneficiary does not meet the age requirements of the scheme, the property may need to be sold.

During that period, the estate may still be responsible for costs such as rent, service charges and management fees until the property is sold.

This is something families should understand before buying.

What Happens With Equity Release When You Die?

With a lifetime mortgage, the situation is different.

The loan is normally repaid when the last borrower dies or moves permanently into long-term care, usually from the proceeds of selling the property.

The amount left for beneficiaries will depend on the value of the property and the amount owed under the lifetime mortgage.

This is why equity release can reduce the value of the estate passed on to family members.

Which Option is Better?

There is no simple answer because OPSO and equity release are designed for different needs.

The right option depends on your circumstances, plans and priorities.

Questions to Ask Before Choosing OPSO

Before buying an OPSO property, it is worth asking:

• How much of the property will I own?
• How much rent will I pay?
• What are the service charges?
• How often can those charges increase?
• Are there management fees?
• Is there a sinking fund?
• Are there exit or event fees?
• What happens if I want to sell?
• What happens when I die?
• How easy will the property be to resell?
• Would another later-life mortgage option be suitable instead?

These questions can help you see the full picture before making a decision.

Speak to My Later Life

Choosing between Older Persons Shared Ownership and equity release can be a major financial decision.

The two options work very differently, and what suits one person may not suit another.

At My Later Life, we specialise in later-life mortgage and equity release advice.

If you are thinking about moving, downsizing, OPSO or staying in your current home and exploring equity release, we can help you understand the options available to you.

Our advisers will take the time to look at your circumstances, explain your choices clearly and help you understand the potential costs and implications before you decide what to do.