How homes can bankroll the gol
Pensioners who have small fortunes tied up in their properties need consider all options before releasing to the cash, reports Harvey Jones
GROWING numbers of pensioners are releasing equity from their homes to make ends meet as retirement incomes fall behind the soaring cost of living, making later life a struggle.
Equity release can help ease your money worries in retirement. However, this is also a big decision that should not be taken lightly. You need to take specialist advice and talk to your loved ones before signing up to a scheme, to give you peace of mind that this is the right thing to do.
Many pensioners now face a financial struggle, despite living in properties worth hundreds of thousands of pounds.
Their spending power has been eroded by years of record low savings and annuity rates, yet at the same time property prices have spiralled.
This generation are known as “asset rich, cash poor” and if you are in this position, an increasingly popular option is to unlock the wealth sitting in your home and turn it into ready cash that you can spend today, through equity release.
You can raise lump sums through what is sometimes called a lifetime mortgage, where the fixed rate of interest rolls up for the rest of your life and is eventually cleared, along with the original capital, from the sale of your property when you and your partner die or go into care.
The equity release sector has grown rapidly and is tightly regulated by the Financial Conduct Authority (FCA).
Schemes are offered by reputable insurance companies such as Aviva, Legal & General and LV= and backed by a code of conduct issued by trade body the Equity Release Council.
These safeguards are valuable, but before taking out a scheme older homeowners need to consider all the pros and cons. Pensioners need to strike a balance between improving the quality of their life against the understandable desire to leave an inheritance for their family, which will inevitably shrink if you release some or all of the value of your property.
They must also check all the alternative ways of boosting their income, talk to their loved ones and speak to an independent family solicitor. SMALL FORTUNE As house prices continue to rise, the over-65s own more property wealth than ever before, an incredible £1.1trillion.
Even though house price rises are slowing, retired homeowners have gained another £7,900 worth of property value over the past year.
Retired homeowners cashed in by releasing in more than £3billion of property wealth last year.
With equity release you cannot get the full market value of your property, but a percentage based on your age. The older the are, the more you can unlock.
The average equity release customer unlocked £77,380 last year. Londoners cashed in the most at an average of £133,700, compared to around £49,000 in Scotland, analysis from over-55s finance specialist Key Retirement shows.
Chief product officer Dean Mirfin said total plan sales rose 41 per cent to 38,955 last year, up from 27,666 in 2016: “The long-term strength of the housing market means pensioners who have paid off mortgages can rely on using their homes to generate tax-free returns from equity release.”
Mirfin said reputable equity release providers now offer plenty of safeguards, including a no-negative equity guarantee, which means you will never owe more than the value of your home, regardless of what happens to house prices. Neither you nor your partner have to sell your home at any time but can remain there until you have both either died or gone into long-term care. You might even be able to move, subject to certain conditions. Home and garden improvements are the most common use for the money, accounting for three out of 10 loans last year, according to research from equity release provider LV=. One in five customers used the money to top up their income and pay bills, with a similar proportion clearing unpaid mortgages, loans or debts. Mike Farrell, equity release sales director at LV=, said people are using their property to provide additional financial security in their retirement: “They are spending longer in retirement and their largest asset is often their home, so it is no surprise people increasingly want to access money tied up in their property.”
Farrell said equity release is a complex product: “Anyone considering it should seek financial and legal advice, as well as asking for views from their family or any beneficiaries of their will.”
It could also be a solution for the growing numbers of homeowners aged between 45 and 65 who face unpaid interest-only mortgage debt at retirement, typically after investing in an underperforming endowment.
City watchdog the FCA recently warned that a wave of pensioners will reach retirement with shortfalls on interest-only mortgages over the next decade or so, peaking in 2032.
Many will struggle to switch to a standard residential mortgage because of their age, warned Steven Becker, assistant vice president and research analyst at credit agency Moody’s. Its research suggests around 80 per cent of borrowers in this position may be eligible for equity
ase products to cover at least some of outstanding debt. Those in property hotspots, particularly London and the South-east, are best ced to fully refinance their interest-only mortgages with and equity release product, added. arlier this year the Communities and al Government Select Committee said there homeowners should be “signposted” appropriate agencies for advice on mortgages, equity release, Help to Buy and shared ownership to help them make informed choices over where to live ater life. quity Release Council chairman David said the move recognised the ndards and protection levels in today’s ity release market: “This gives people fidence they can release some of their sing wealth to fund property repairs or adaptations, among other potential uses.” e said older people need to sider all options for raising money as ’s population ages and uncertainty ws over how to fund social care: “There is no one-size-fits-all solution but equity release has an important role to play.”
Equity release offers a wider economic boost because for every £1 of housing wealth accessed £2.34 is generated for the economy, according to research from Legal & General Retirement.
Chris Knight, chief executive officer, retail, at Legal & General Retirement, said its “Silver Spenders” research shows that homeowners aged over 55 are boosting UK gross output by up to £7.1billion through equity release.
With Equity Release Council figures suggesting equity release could hit £5billion in 2020, GDP could enjoy a further boost from silver spending power.
Releasing equity from your home is a major step and you should first explore other options for raising money, such as finding a part-time job in retirement, downsizing or getting help from family.
Always take advice both from an adviser who specialises in this sector and a trusted family solicitor, and most importantly, those nearest to you.