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One in four consider lifetime mortgages

One in four consider lifetime mortgages

Leading mortgage lender Legal and General surveyed Britain’s homeowners and found that one in four are interested in lifetime mortgages. In 2017 the Equity Release Council (ERC) report that £3 billion was released by homeowners in the form of lifetime mortgages to fund improvements to later life.

Lifetime mortgages explained

Lifetime mortgages are designed to help homeowner retirees or those nearing retirement to release property value to fund later life. Lifetime mortgage eligibility can vary but applicants must be homeowners and must usually be a minimum of 55 or 60 years’ old.

Lifetime mortgages enable homeowners to take out loans secured against their homes. The loans do not need to be repaid until the homeowner dies or goes into long-term care. The Equity Release Council (ERC) regulates lifetime mortgages.

Lifetime mortgages can help homeowners to release house value from their homes, while still living in their homes; but also enable homeowners to ring-fence home value so that family inheritance is not compromised.

There are two types of lifetime mortgages

Interest roll-up mortgages – the homeowner gets a lump sum or can take an initial lump-sum and then regular payments. The interest on this loan is rolled up and paid when the home is sold. If the mortgage has a ‘no-negative guarantee’ this means that the final home value will never be less than what is owed on the lifetime mortgage. This stipulation is regulated by the ERC, lifetime mortgage advisors are aware of it.

Interest-paying mortgages – the homeowner gets a lump sum and makes either monthly or ad-hoc payments to pay off the interest and/or the capital on their mortgage. The amount borrowed is paid off when the property is sold or when the lifetime mortgage term ends.

How homeowners use equity release

The most popular use of house wealth was to fund refurbishments, renovations and home improvements. The good news about this reinvestment is that it is spent within the UK in the construction and manufacturing sectors. Legal and General Assurance Company has calculated that every £1.00 of house value released is worth £2.34 to the economy.

  1. Some later life homeowners use equity release to provide a Living Inheritance. By placing a debt on the house and gifting the money to their children, later life homeowners enable their children to receive part of their inheritance early. And subject to UK Inheritance Tax (IHT) regulations, can potentially reduce IHT liability for both the estate and for their offspring.
  2. In other cases house wealth can fund domiciliary care in the mortgagee’s own home. More people in need of care are now choosing to stay in their own home, rather than selling their house and moving into a care home.
  3. House equity can be used for home improvements. Homeowners in later life do not always have the means to carry out extensive repairs to their home. This is because they may not have the capital as a lump sum, or they may not have sufficient income to secure a loan. By using equity released from their homes they can afford home improvements.
  4. There is a need for some retired people to supplement their pension income due to low annuity rates. By releasing equity in a property, pension income can be supplemented through pre-planned staged payments, or drawdowns via a lifetime mortgage product.

Here is our tips list when considering a lifetime mortgage

  • Draw up a quick budget planner. It should cover later life finances but also what you wish to do and how you can plan for it.
  • Always discuss your options with an Independent Financial Advisor or mortgage adviser that is properly qualified to give advice in this area.

Retirement planning is complex and you may need specialist advice to achieve your retirement dream.

  • You may also want to discuss your plans with your family.
  • Do not discount local authority funding and help, particularly regarding wheelchair access, disabilities or any other medical help or support.

To book a consultation with MarchwoodIFA equity release expert Hamish Gairns, please call 01243 532 635.

To discuss pensions, retirement and investment plans, please ask to speak to Richard Smith.

To discuss mortgages and insurances, please ask to speak to James Mayne.

Why lifetime mortgages are growing in popularity

Why lifetime mortgages are growing in popularity…

Stagnant wage increases, jumps in property values and an aging working population have all contributed to a rise in popularity of lifetime mortgages; that is mortgages for the over 55’s.

Lifetime mortgages explained…

In the last quarter of 2016 lifetime mortgage applications, also known as equity release applications, hit a record high in total lending of £571.6m. It is expected by the Equity Release Council (ERC) that total lending for the 2016 tax year will finish at £2bn – the highest on record. Lifetime mortgages can be used by over 55’s to unlock house wealth. There are three plan types that can be used to release equity to over 55 mortgagees:

  1. Drawdown plans allow mortgagees to release house wealth in installments which; can help to fund smaller costs and to boost retirement income. Drawdowns remain the most popular plans accounting for 62% of all new lifetime mortgage plans in the last quarter of 2016.
  2. Lump sum plans are often used to liberate large sums of money to eg clear an outstanding mortgage or other debt; or to fund home improvements, living inheritance, or travel. These plans have increased in popularity and reached 2008 demand levels in the last quarter of 2016.
  3. Home reversion plans are where the mortgagee sells all or part of their property at less than its market value in return for a tax-free lump sum, a regular income, or both. The mortgagee remains in his or her own home as a tenant, without having to pay rent. These are the least popular equity release plans, according to the ERC, accounting for less than 1% of all lifetime mortgages agreed in the last quarter of 2016.

The first industry Standards were introduced for equity release 25 years’ ago. The recent lifetime mortgage record lending figures, highlight the appeal of using housing wealth to partly fund later life.

According to the Chairman of the Equity Release Council Nigel Waterson: “Product innovation has played a huge role in the growing appeal of equity release to a range of customers, including the growing number of homeowners with interest-only mortgages due for repayment. The range of features available now give people the option to choose inheritance protection, downsizing protection, monthly interest repayments or voluntary capital repayments when they opt for a lifetime mortgage.”

Lifetime mortgages have also benefited from low interest rates a typical mortgage rate having fallen from 6.15% to 5.66% since the Bank of England cut rates in August 2016.

How lifetime mortgage equity release funds can be used

  1. House equity can be used for home improvements. Homeowners in later life do not always have the means to carry out extensive repairs to their home. This is because they may not have the capital as a lump sum, or they may not have sufficient income to secure a loan. By using equity released from their homes they can afford home improvements.
  2. There is a need for some retired people to supplement their pension income due to low annuity rates. By releasing equity in a property, pension income can be supplemented through pre-planned staged payments, or drawdowns via a lifetime mortgage product.
  3. Some later life homeowners use equity release to provide a Living Inheritance. By placing a debt on the house and gifting the money to their children, later life homeowners enable their children to receive part of their inheritance early. And subject to UK Inheritance Tax (IHT) regulations, can potentially reduce IHT liability for both the estate and for their offspring.
  4. In other cases house wealth can fund domiciliary care in the mortgagee’s own home. More people in need of care are now choosing to stay in their own home, rather than selling their house and moving into a care home.

Increased competition in the lifetime mortgage market place has meant that over 55’s can benefit from low interest rates, or cash back offers. There are now 75 different lifetime mortgage equity release deals available, which cover a range of options and loan-to-values (LTVs). Also, if we take a closer look at inheritance tax and probate fees we can see that rising house wealth is driving changes in legislation with the introduction of…

  1. Higher probate fees for properties valued at over £2million – from £215 to £20,000 and
  2. Significant increases in Inheritance Tax payments – up 21% from £3.8billion (tax year 2014/15) to £4.6 billion (tax year 2015/16)

Growing numbers of retirees are planning for high housing value and protecting their nest and its eggs through inheritance tax planning, and also investment products such as Investment Savings Accounts (ISAs) and Enterprise Investments Schemes (EISs).

There has been a 63% increase in available equity release schemes over the past three years; we would urge anyone considering a lifetime mortgage to consult their IFA. In our experience, obtaining specialist independent financial advice including an illustration of the finance plan enables the client to make the best long-term decision. Please remember that equity release may not be the most suitable finance option for you.

For expert equity release, retirement income, inheritance tax planning, pension and investment advice contact Marchwood IFA.

Generation rent explained; homeowner options

Though the British economy has grown since 2010 by 10%, and the employment rate is now as high, at 74.4%, as it was in 2005; young people are unlikely to own their own home until they are 40 years’ old – hence the term ‘generation rent’. And despite job creation continuing to improve, the number of working families that also rent is growing as well. The lack of home ownership would not be a problem, if affordable housing was available to working people, young or old, with or without families. But housing is getting less affordable in real terms, particularly in urban areas where job concentration is high. The number of Local Authority owned houses has fallen by half since 2001. Of the 2m jobs created since 2008, two-thirds of them are in London where houses cost almost double the national average. In some London boroughs the ratio of prices to earnings is more than 20:1.

Despite England’s housing stock growing by 1m from 2008, owner occupation fell by 2%, and the private rentals market grew by 1.3m. If we lift the bonnet further, and look at British home ownership by age, we see that 80% of homes are owned by those born in the 1960’s, 70% are owned by those born in the 1970’s, 42% are owned by those born in the 1980’s and 8% only, are owned by those born in the 1990’s (remember houses are frequently owned by two people – hence the 200% total).

Our national obsession with home ownership is understandable given the financial gains that can be made from property ownership but according to Neal Hudson of estate agency Savills “the share of households owning their own home peaked in 2003 at 71% […] and has been in decline since.”

So, what are the options for home ownership?

The government recently launched a first time buyers ISA where single or groups of first time buyers can pool their money to save for a mortgage deposit. This is one of a range of new government schemes aimed at helping families and young couples or groups of individuals to buy their own home. For example a help to buy equity loan enables people to buy a new-build home with a cash deposit of 5%. In addition the government will lend up to 20% of the cost of the newly built home, meaning that would-be homeowners can take out a mortgage for the remaining 75% only. Special government schemes also exist for people and families that wish to buy a new-build in a London borough.

At the other end of the age spectrum over 55’s lifetime mortgages are growing in popularity. This is where older homeowners, perhaps parents or grand parents, want to release equity and house wealth from their homes. The money can be used in a variety of ways, in some cases because seniors or retirees may earn less and therefore cannot borrow money; the funds are needed for home improvements. But, of course, the house wealth could be invested in retirement income and towards inheritance tax planning where house values are high. Another way, that released house wealth equity can be invested by parents and grandparents, is in government help to buy schemes, where deposit money or funds for first time buyer ISAs investment are gifted to offspring.

As an alternative to traditional home ownership, a new housing option favoured by some young professionals that work in cities is: co-living. The Collective is a communal housing development that opened in London in April 2016. The Collective houses 500 residents, with shared cafes, bars, libraries, gyms, gardens, social and hot desk working spaces.

Are we more in debt because of high house prices?

Just before the 2008 crisis British household debt as a percentage of income peaked at 160%, average debt per household was at £64,000 after adjustments for inflation. The figure had fallen to 140% by 2014, and the number of Britons spending a third of their income struggling to pay off unsecured and mortgage debt had also fallen by 3% from 2008 to 2015. If we take a closer look at mortgage debt; interest rates have fallen to historical lows. Excessive mortgage lending was curbed following changes to legislation in 2014, and banks favour repayment mortgages not interest only mortgages. Just 1% of new mortgages were interest only in 2015 whereas in 2007 a third of all mortgages were interest only loans. This has contributed to fewer households being unable to pay their mortgages. This would suggest that most Britons have applied austerity measures to themselves. We should remember that the 2008 crisis was not caused by banks’ excessive domestic mortgage lending; the cause was excessive lending to the commercial sector. It is not just price that is fuelling the generation rent trend.

Young people spend longer at university in Britain, and may prefer to rent so that they can live where the better jobs are. Growing workplace skills deficiency would indicate that being well-education and gaining experience will pay off in the long-term. Today’s richer retirees are well-educated professionals that can still command high salaries for ‘service’ related work in the finance, tech, engineering and consultancy sectors. For generation rent other income investment options such as Stocks and Shares Investment Savings Accounts (ISAs) may help them prepare for a lifetime of flexible and varied work.

Contact Marchwood IFA to arrange a mortgage or an investment consultation. We specialise in investments, mortgages, pensions, equity release (lifetime mortgages) and life insurance.

Why lifetime mortgages can make sense for over 55’s

Unlocking house wealth through equity release; why lifetime mortgages make sense for over 55’s

In the last tax year 2015/16 equity release mortgage applications, (which are now know as lifetime mortgages) hit a new annual record in total lending. Lifetime mortgages are used by some over 55’s to unlock house wealth. Over 22,500 mortgage deals were arranged, hitting a new record high of £1.61billion in lending. The figures released by the Equity Release Council (ERC) also show that total lending of £898million on lifetime mortgages, was made in the final half of 2015, the largest half yearly total on record.

So why the increase in lifetime mortgage applications

  1. There is a need for some retired people to supplement their pension income due to low annuity rates. By releasing equity in a property, pension income can be supplemented through pre-planned staged payments, or drawdowns via a lifetime mortgage product.
  2. In other cases house wealth can fund domiciliary care in the home. More people in need of care are now choosing to stay in their home, rather than selling their house and and moving into a care home.
  3. House equity can be used for home improvements. Homeowners in later life do not always have the means to carry out extensive repairs to their home. This is because they may not have the capital as a lump sum, or they may not have sufficient income to secure a loan. By using equity released from their homes they can afford home improvements.
  4. Some later life homeowners use equity release to provide a Living Inheritance. By placing a debt on the house and gifting the money to their children later life homeowners enable their children to receive part of their inheritance early. And subject to UK Inheritance Tax (IHT) regulations, can potentially reduce IHT liability for both the estate and offspring.

The majority of drawdown plans, around 7 in 10, that were agreed in the last quarter were options plans; meaning that clients could elect to withdraw housing wealth in stages to boost retirement income as, and when required. Options drawdown lending for the whole year stood at £961 million the highest ever in a whole year.

ERC member firms contribute over 90% of the UK’s total lifetime mortgage lending which reached a record figure of £1.61billion in 2015. Whereas the lifetime lending figure in 2014 was £1.38billion.

Both the high value of equity release agreements and increased number and drawdown plans available indicate an emerging trend as over 55’s increasingly look to supplement retirement income including pensions.

Maybe over 55’s are releasing capital in their homes to simply give them more financial freedom in their retirement; and who could blame them!

Perhaps it’s the reduction in interest rates and offer of benefits such as free valuations and cashbacks that accompany these plans which have contributed towards their popularity.

However, if we take a closer look at inheritance tax and probate fees we can see that rising house wealth is driving changes in legislation…

…the introduction of:

  1. Higher probate fees for properties valued at over £2millionnow £20,000, formerly £215 and
  2. Significant increase in Inheritance Tax payments – up 21% from £3.8billion (tax year 2014/15) to £4.6 billion (tax year 2015/16)

Demonstrate that growing numbers of over 55’s are planning for higher housing value and protecting their nest and its eggs through inheritance tax planning, and investment products such as Investment Savings Accounts (ISAs) and Enterprise Investments Schemes (EISs).

For equity release, retirement income and inheritance tax planning, ISA and EIS investment and pension advice contact Marchwood IFA today.

There are many different equity release schemes available on the market. We would advise you to seek professional financial advice before deciding that equity release is right for you. Please obtain specialist independent financial advice including an illustration. Equity release may not be suitable for you.

What is Equity Release? Questions and Answers.

Equity-Release-Home-427x273

Q. What is equity release?

A. It’s the name for a range of financial products that give you access to the equity (in effect, the cash) that is tied up in your home, as long as you are over 55 years old. You can release the money as a lump sum or via regular smaller amounts.

Q. What are the 2 main equity release options?

A. Lifetime mortgage and home reversion.

Q. What are the main differences between the two?

A. With a lifetime mortgage you borrow money secured on your property. With home reversion, you sell part or all of your property to a company in return for a lump sum or regular smaller payments. You have the right to stay living in the property until you die.

Q. Which option do most people who release equity from their property use?

A. Lifetime mortgages. Unlike an ordinary mortgage, you don’t have to make monthly repayments while you are alive. Interest is added to the loan and the total loan amount plus interest are paid back, either when you die or when you move house. Just like ordinary mortgages vary between lenders, so do lifetime mortgages. Most lifetime mortgages have a fixed rate of interest. Some providers offer variable rate lifetime mortgages, but these offer less certainty.

Unlike conventional mortgages where interest is charged on an amount that decreases with time, interest on lifetime mortgages is charged on an increasing sum, so your debt can grow quickly.

When considering whether to take out a lifetime mortgage, you should check the following:

  • The minimum age at which you are permitted to take out a lifetime mortgage. Many lifetime mortgage providers insist that you are at least 55 or 60. Don’t forget that the earlier you start a lifetime mortgage, the more it is likely to cost in the long run.
  • The maximum loan to value (LTV) ratio you can borrow. Depending on your age, you can borrow up to 50% of the value of your property.
  • Whether you can pay some or all of the interest. If you can do this, the mortgage will ultimately cost less. However, with a lifetime mortgage where you can make payments, the loan amount may be based on your income – to be able to afford the repayments – as well as the value of your home.
  • Whether you can withdraw the equity you’re releasing in small amounts as and when you need it or whether you have to take it as one lump sum. The advantage of being able to take money out in smaller amounts is that you only pay the interest on the amount you’ve withdrawn. If you can take smaller lump sums, check to see if there’s a minimum amount.
  • What level of maintenance you’ll be expected to carry out on your property and how often your property will be inspected by the lender (this could be every few years).

Q. What about home reversion?

A. Home reversion allows you sell some or all of your home to a home reversion provider. In return you’ll get a lump sum or regular payments. You have the right to stay living in the property until you die, although you do have to maintain and insure it yourself; the home reversion company does not take on that responsibility. Note that you will normally only get between 20% and 60% of the market value of your property (or the part that you sell).

When considering whether to take out a home reversion plan, you should check the following:

  • The minimum age at which you can take out a home reversion plan. Some home reversion providers insist that you are at least 60 or 65 before you can apply.
  • The percentage of the market value you will receive. This will increase the older you are when you take out the plan but may vary from provider to provider.
  • Whether or not you can release equity in several payments or one lump sum.
  • What level of maintenance you’ll be expected to carry out and how often your property will be inspected (this could be every few years).

Getting advice

If you are thinking of taking out an equity release product, you should take financial advice from a specialist. All advisers recommending equity release schemes must have a specialist qualification. Check that your adviser does, and:

  • Searches the whole of the market, so they can find the right plan for you.
  • Is on the Financial Conduct Authority register (you should search by the firm’s name). A firm that is on the FCA register must sign up to the Financial Ombudsman Service, which is a free complaints service if you’re unhappy with their response to a complaint

Before you decide whether or not to take out an equity release product, ask the adviser:

  • what their fees are
  • what other fees you’ll have to pay (legal, valuation, set up costs)
  • what type of equity release products they can they can offer

Note that Equity Release should usually only be offered to clients after other solutions are eliminated, for example:

  • Remortgage. This is not the right solution if you are either too old or do not want to have to pay the monthly repayments on a mortgage, something you don’t have to do with an Equity Release product.
  • Moving. Have you considered downsizing first? Although that’s not an option if you wish to stay in your current home because of its location.
  • Bank loans. Not normally a good solution due to the relatively high monthly cost.
  • Borrowing from family. Not usually possible.
  • Using existing savings.

There are several different equity release schemes available on the market so you need to seek professional financial advice before deciding whether Equity Release is right for you. Equity release may not be suitable for your needs. Please obtain specialist independent advice and always ask for an Illustration.

In your 60s? Equity release might improve your retirement.

  • Are you over 60 years of age or do you have elderly parents that could benefit from releasing capital from their home? Equity release might improve your – or their – retirement lifestyle.
  • Are you worried about insufficient savings for your retirement?
  • Are you worried about your inheritance tax position and would like to look at possible ways of reducing this?
  • Would you (or would older relatives) like to benefit from supplementing pension income to improve lifestyle by releasing equity, without the need to move and ‘downsize’.
  • Or perhaps your children are in their 30s or 40s and are struggling to get onto – or move up – the housing ladder and you would like to help them?
  • Are you looking for ways to fund ‘in home’ care fees by releasing capital from your property or have elderly parents that need advice in this area?

2014 saw the largest amount of equity release lending ever recorded – £1.4 billion – according to the Equity Release Council. This is the largest annual figure since records began in 1992, exceeding the previous high (£1.21bn in 2007) by 14%.

Nigel Waterson, Chairman of The Equity Release Council, comments:

“People’s property is very often their biggest and most secure financial asset, with a far greater return on their original investment.

“Particularly if they bought their homes some time ago, many will have a large amount of equity tied up in their property that can relieve the pressure on their retirement income and help with additional expenses.  In many cases, equity release can offer retirees an alternative to selling their property – one that preserves their domestic comfort as well as their attachment to the place they call home.

“Whether choosing a lump sum or regular monthly payments, equity release customers can enjoy the relief of an extra source of retirement income, safe in the knowledge they are free to remain in their homes for the rest of their lives, if they choose to, and will never owe more than the property is worth.”

Note that Equity Release is usually only offered to clients after other solutions are eliminated, for example:

  • Re-mortgage. Sometimes this is not the right solution because the client is either too old or does not want to have to pay the monthly repayments on a mortgage, something you don’t have to do with an Equity Release product.
  • Moving. We always make sure that the clients have considered downsizing first – not an option if they wish to stay in their current home because of its location.
  • Bank loans. Not normally a good solution due to the relatively high monthly cost.
  • Borrowing from family. Not usually possible.
  • Using existing savings.

There are several different equity release schemes available on the market so you need to seek professional financial advice before deciding whether Equity Release is right for you. Equity release may not be suitable for your needs. Please obtain specialist independent advice and always ask for an Illustration.

Largest amount of equity release lending ever recorded – £1.4bn in 2014

• Annual lending total is the highest since records began in 1992
• More than 21,000 new customers in 2014 – the most recorded since 2008

The total value of equity release lending reached almost £1.4bn (£1.38bn) in 2014, according to the latest industry figures from the Equity Release Council. This is the largest annual figure since records began in 1992, exceeding the previous high (£1.21bn in 2007) by 14%.

This 2014 total is also a 29% increase from 2013, bringing the equity release market back above pre-recession levels as homeowners aged 55+ increasingly use their housing wealth to boost their finances and help with living costs in later life.

Total value of equity release lending 1992 - 2014

Source: Equity Release Council

Six-year high for new customer numbers
The total number of new equity release customers in 2014 was 21,336, a 13% increase from 2013 and the largest yearly figure since 2008. Customer numbers have now grown for four consecutive years since the recession.

New equity release customers 2008-2014

Source: Equity Release Council

The average value of equity release lending also hit a new milestone in 2014, reaching £64,787.  This is an increase of 14% from last year and exceeds the previous record of £60,504 in 1998 by 7%.

Equity release can be a very useful option for those in retirement who are ‘asset rich’ but ‘cash poor’ – i.e. they own a valuable property but have a relatively low income – and who can boost their income by releasing some of the equity in their property. See our article on ‘Equity Release – could it provide you with a better retirement’.

Note that Equity Release is usually only offered to clients after other solutions are eliminated, for example:

  • Remortgage. Sometimes this is not the right solution because the client is either too old or does not want to have to pay the monthly repayments on a mortgage, something you don’t have to do with an Equity Release product.
  • Moving. We always make sure that the clients have considered downsizing first – not an option if they wish to stay in their current home because of its location.
  • Bank loans. Not normally a good solution due to the relatively high monthly cost.
  • Borrowing from family. Not usually possible.
  • Using existing savings.

We also always encourage family members to be part of the discussions.

On all our products there is a ‘No Negative Equity’ Guarantee. Which means that – no matter when the client has to pay the lender back and how much is outstanding – the loan will never be more than the value of the property at that time.

There are several different equity release schemes available on the market so you need to seek professional financial advice before deciding whether Equity Release is right for you. Equity release may not be suitable for your needs. Please obtain specialist independent advice and always ask for an Illustration.

Equity Release – take advantage of increasing house prices

Recent articles in the national press have highlighted the number of home owners releasing cash from their properties via Equity Release schemes. Such withdrawals exceeded £1bn in 2013 for the first time since before the credit crisis.

2007 was the peak year for Equity Release, with 30,000 over-55s unlocking wealth tied up in their homes. But the figure was down to 16,000 in 2011 before recovering to 19,000 last year. Highest ever amounts were borrowed in 2013 – an average of £60,000 per withdrawal – which accounted for the £1bn total. It is clear that people are taking advantage of resurgent house prices across the UK to release equity and supplement their income.

Equity release can be a very useful option for those in retirement who are ‘asset rich’ but ‘cash poor’ – i.e. they own a valuable property but have a relatively low income – and who can boost their income by releasing some of the equity in their property. See our article on ‘Equity Release – could it provide you with a better retirement’.

One of the most valuable uses of Equity Release is to provide in-home care to maintain independent living.

We recently advised an elderly couple who are suffering from ill health. They needed to pay for a full time live-in carer but did not wish to move from their home which is in a beautiful location and near their friends and family.

They already had an Equity Release product for £312,000 with Northern Rock. This was paying them £3,600 per month as an income at an interest rate of 6.69% pa. They needed to pay off the current loan of £312,000 and generate a new monthly income of £5,600, the extra £2,000 per month income to pay for a full time live-in carer. They also needed £20,000 immediately to convert a part of the house into a flat for the carer to live in and to pay for a Stannah Chairlift.

We arranged an equity release product for a total amount of £872,000 with Liverpool Victoria on their Flexible Lifetime Mortgage product which allowed our clients to:

– pay off the loan of £312,000
– take an initial drawdown of £20,000
– keep the rest in reserve for when it is needed – i.e. once the live-in carer is employed

We negotiated an interest rate of 6.19% fixed for the term of the product.

This case is larger than the average equity release we deal with, but the principles are exactly the same, regardless of the amount of equity you want to release from your property.

Note that Equity Release is usually only offered to clients after other solutions are eliminated, for example:

  • Remortgage. Sometimes this is not the right solution because the client is either too old or does not want to have to pay the monthly repayments on a mortgage, something you don’t have to do with an Equity Release product.
  • Moving. We always make sure that the clients have considered downsizing first – not an option if they wish to stay in their current home because of its location.
  • Bank loans. Not normally a good solution due to the relatively high monthly cost.
  • Borrowing from family. Not usually possible.
  • Using existing savings.

We also always encourage family members to be part of the discussions.

On all our products there is a ‘No Negative Equity’ Guarantee. Which means that – no matter when the client has to pay the lender back and how much is outstanding – the loan will never be more than the value of the property at that time.

There are several different equity release schemes available on the market so you need to seek professional financial advice before deciding whether Equity Release is right for you. Equity release may not be suitable for your needs. Please obtain specialist independent advice and always ask for an Illustration.

Equity Release – could it provide you with a better retirement?

You may have seen articles in the national press about how people in retirement who are ‘asset rich’ but ‘cash poor’ – i.e. they own a valuable property but have a relatively low income – can boost their income by releasing some of the equity in their property.

Maybe your house needs unexpected and expensive repairs or perhaps you want a better standard of living in retirement or to provide in-home care to maintain independent living? There are several different equity release schemes available on the market so you need to seek professional financial advice before deciding whether equity release is right for you.

With most equity release schemes you will be borrowing money against the value of your home and this money is repaid when your house is sold – usually when you die or move to a care home. These schemes work on the principle that you will be lent a proportion of your home’s value and in return the lender will share in the sale proceeds.

There is no doubt that for many people, the most valuable part of their estate is their house, which has increased significantly in value at a time when retirement income in general has not done so. In a recent study by the Equity Release Council, analysis of Land Registry and Office of National Statistics data showed that house prices have increased nearly twice as fast as the average retiree’s income over the past 15 years.

The Equity Release Council’s calculations show that, since 1997, house prices have grown by 91% or £109,399 in real terms, from £120,211 to £229,610. In contrast, the average pensioner’s income has risen by 46%, equivalent to an extra £6,343 in their annual budgets.  This has taken their average gross income from £13,786 to £20,129.

A further issue in the current low interest rate environment is that pensioners who used to be able to rely on generating cash from their deposit accounts are finding that they cannot even keep up with the inflation rate and their savings are actually earning a negative real rate of return. (See our blog ‘What is inflation doing to your savings?’)

Nigel Waterson, Chairman of The Equity Release Council, has comment on the research as follows:

“What we are seeing is a new reality emerging in terms of retirement income as people increasingly look to pensions and annuities, rather than investments, to finance their later years. However, the uncertainty surrounding many funds means that people’s property is very often their biggest and most secure financial asset, with a far greater return on their original investment.

“Particularly if they bought their homes some time ago, many will have a large amount of equity tied up in their property that can relieve the pressure on their retirement income and help with additional expenses.  In many cases, equity release can offer retirees an alternative to selling their property – one that preserves their domestic comfort as well as their attachment to the place they call home. 

“Whether choosing a lump sum or regular monthly payments, equity release customers can enjoy the relief of an extra source of retirement income, safe in the knowledge they are free to remain in their homes for the rest of their lives, if they choose to, and will never owe more than the property is worth.”

Equity release may not be suitable for your needs. Please obtain specialist independent advice and always ask for an Illustration.

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