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.