TURN YOUR HOME INTO A CASH MACHINE

PENSIONS PULLOUT

GrOWING numbers of people in their 60s and 70s are turning their homes into cash machines to boost their retirement income.

In the first half of this year more than 17,500 older homeowners took out an equity release plan — a 44 pc increase on 2016.

These so- called lifetime mortgages let you access the equity in your home without having to make monthly repayments. The interest grows in the background and is cleared when the house is sold — either on death or if you move to a care home. That can make the loans expensive.

homeowners have now released £1.25 billion through these schemes. Most customers use the cash to clear debts or pay for home improvements, holidays and day-today living, according to specialist equity release firm Key retirement.

Pensioners are also using the money released to help children and grandchildren on to the housing ladder.

It’s not hard to see why equity release has become big business. People are living longer so need more money to support them through their twilight years.

Over the past week, Money Mail’s pensions series has run through an array of ways to make your pensions last for life.

If, once you’ve exhausted all these, your pension still won’t stretch far enough, you need to look into alternatives.

And our homes are where most of us hold the main portion of our wealth. According to halifax, the average house has risen in value by 236 pc over the past 20 years.

Those living in london and the South east have seen even more dramatic increases — with property in the capital rising by 402 pc over this period. The question for homeowners is what is the best way to turn this into hard cash?

The traditional route has been to sell up and move somewhere cheaper to release funds. This can be the most cost-effective option over the long term, even taking into account estate agents’ fees and stamp duty.

But many may be reluctant to leave the family home, and it may be impractical to move somewhere smaller, or further away from family and friends.

equity release mortgages allow people to access some of the money locked up in their property without moving house. homeowners have to be 55 to take one out, although industry figures show the majority are sold to borrowers WARD ANDY Illustration: in their 70s. equity release mortgages are loans secured against your property, giving homeowners a cash lump sum, or the ability to draw down money in stages.

The key difference compared with a conventional mortgage is that you don’t have to make repayments during your lifetime, although some newer products allow you to do so. An equity release isn’t repaid until the second spouse dies or goes into care.

Interest charges can be substantial. The Bank of england base rate may be at an all-time low of 0.25 pc, but the average equity release charges 5.3 pc, according to the equity release Council.

Charging can vary though — the cheapest deals charge 3.73 pc, while the most expensive charge 6.78 pc, according to dean Mirfin of Key retirement. The average

amount taken out via an equity release scheme is just over £70,000.

At the average interest rate of 5.3 pc, your debt roughly doubles every 14 years. So if you take out a loan of this size at the age of 65 and live to 93, the amount owed will balloon to £280,000 over these 28 years.

Unlike conventional mortgages, there is no end-date on an equity release mortgage. Of course, people will be hoping that house prices continue their upward trajectory, and rise at a faster pace than the interest added to their loan. But there is no guarantee of this. Even with modest growth,house price over time this debt is likely to seri ously erode the equity in your home

This can create problems. For example, it is likely to significantly reduce any inherit ance you leave behind, although this may not be an issue if you don’t plan to leave a legacy, or are worried the value locked up in your home will spent on care fees.

Equity release can also restrict your abil ity to move, particularly if illness or disa bility means you need to. However,newer products are becoming more flexible. the Equity Release Council says almost half of

plans sold now include ‘downsizing protection’, which allows a customer to move to a smaller property and pay off the loan without incurring penalty charges. But don’t expect these more flexible products to offer the most competitive interest rates.

All regulated equity release mortgages come with a ‘no negative equity’ guarantee. This ensures children or surviving family members won’t owe money if the house sale doesn’t clear the outstanding debt.

This is why there are restrictions on how much you can take out. For example, if you are 55 you can only borrow up to 26 pc of the value of your home. At 75, this increases to 48 pc, and by 85 people can unlock 54 pc. Taking out an equity release plan may affect your tax situation and eligibility to state benefits. It is vital to seek financial and legal advice (expect to pay around £2,500).

An adviser should also be able to help you find the most suitable product. Some equity release mortgages offer ‘drawdown’ facilities, for example, which give you the option of drawing money in stages, which can reduce overall interest charges. Others allow you to make early repayments or pay off interest without incurring penalties.