Is Equity Release for you?
growth may also be a factor and therefore
important to look out for the necessary
safeguards of a ‘no negative equity
guarantee’ so that you will never owe
more than the value of your home or leave
any debt behind regardless of changing
property prices.
In today’s financial climate where many
pension pots fall short of what is required
to sustain a stable retirement life, an
increasing number of consumers aged
55 plus are turning to their most valuable
asset – their home - to support their
finances.
With the rise in property value, property
wealth is increasingly providing more of
a dependable source of funding allowing
consumers to put their finances in order
with a view to securing their retirement
funding.
Is the Equity Release Market therefore
a solution for retirement funding? It
certainly isn’t for everyone, however as
life expectancy rises it may suit those
homeowners who struggle on retirement
with mortgage payments, settlement of
debts, repairs and home improvements,
or even the repayment of interest-only
mortgages with no lump sum available to
do so.
Since the Mortgage Market Review (MMR)
fewer residential mortgages have been
available to customers aged 55 and over,
thus encouraging increased activity in the
lifetime mortgage market, offering releases
of equity in the form of a lump sum, several
smaller amounts or as a combination of
both. Market growth in equity release has
reached its peak since 2008 and recent
figures suggest that the MMR restrictions
and the recent pension reforms in April
2014 may be impacting this surge in equity
release.
With two-thirds of customers opting for the
drawdown of a lump sum mortgage, this
demonstrates the attractiveness of using
property wealth as a source of generating
an alternative income when ceasing
employment and hence providing sufficient
capital to last ones retirement.
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So, what is it exactly? On an equity release
you can take out a lifetime mortgage
secured on your property provided it
is your main residence, while retaining
ownership and the right to remain in your
property for life. You can choose to ringfence some of the value of your property
as an inheritance for your family. You
can choose to make repayments or let
the interest roll-up. The loan amount and
any accrued interest is paid back when
you die or when you move into long-term
care. Equity Release may not be suitable
if you have dependants living with you,
and you will need to use the money to
immediately release yourself from any
existing mortgage or loan secured against
the property, to then be free to use the
money left over for your other financial
requirements.
Potential consumers need to consider
all the options before making a decision
to raise income from their home by
way of equity release. This may involve
considering the possibility of moving to a
smaller property to release some money,
considering other investments or assets
to boost income, exploring entitlement to
benefits, debt advice and assistance with
home improvements from the local council
or other agency.
Further considerations include equity
release being more expensive in
comparison to an ordinary mortgage and
that a fixed interest rate for the life of the
plan be secured. Of equal importance,
is the right to be able to move the plan to
another suitable property, bearing in mind
that if the proposed property is of a lesser
value, you may be looking at having to pay
some of the mortgage back.
A lifetime mortgage will be charged
out on a higher interest rate. A further
consideration is that the house price
There is no fixed term as such by which
you are expected to pay back the loan
and any money you receive from an equity
release may affect your entitlement to
state benefits. Furthermore, if you release
money from your home, you may not be
able to rely on your property for money at
a later date if you require further funds, say
for long-term care. There is a requirement
to pay arrangement fees depending on
the plan that is arranged and there may
be expensive early redemption payments
if you change your mind about an equity
release mortgage. Ensure that you receive
fair, simple and complete presentations
and that you have an outline of all potential
and associated costs.
Experience has it consumers who consider
equity release will often go through a
period of ‘soul searching’ before making
their decision to go ahead. This will often
be triggered by what their children or next
of kin may think of their decision, or for
fear that they may be considered a failure
for leaving an estate subject to a secured
mortgage debt. Is this really something
that ought to be of concern to consumers?
Are children now not already better off than
their parents, or with every expectation of
being so – furthermore, will not ‘part-only’
of their parents’ property value be sufficient
future inheritance to see them through,
or in any event will children not want their
beloved parents to have the financial
means to enjoy their twilight years?
If you are thinking of taking out an equity
release product, you should take financial
advice from an independent financial
adviser with a specialist qualification on
recommending such products. If this is the
right choice for you, the most suited plan
for your needs will be suggested before
we give you the independent legal advice
required to carry out the associated legal
work.
Should you have any queries or questions
on Equity Releases, then our experienced
team will be able to provide detailed
guidance and advice.
By Sylvia Garcia