Figures from the Equity Release Council have shown that homeowners borrowed a record £1.61 billion through equity release schemes in 2015. This highlights that, for many retirees, property is their biggest asset, and that rising house prices have allowed some to build up considerable equity; ERC stats showed customers borrowed an average of £70,670 each.
For the Macbeth Financial Services team, it also suggests an ever- growing reliance on housing wealth as a key pillar of later-life financial planning. Is this the right route? Are equity release plans a good way for homeowners to boost their cash in retirement?
Equity release comprises a product scheme where over-55s can access equity tied up in their home, via a lump sum or a number of smaller amounts. The two key options are:
- Lifetime mortgage, where a mortgage is secured on your property, however rather than making repayments while you’re alive, interest is added to the loan. The loan amount and interest are paid back when you die or when you move house.
- Home reversion which involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments. The homeowner can continue living in the property, but must maintain and insure it.
Historically, equity release has been controversial, with initial products resulting in homeowners owing more than they released from their property. While current plans have protection against negative equity, they’re still not always the best option as they offer less cash than would be available if the property was sold on the open market, and have other financial implications. Not least, the compound interest accrued and expense of set up and arrangement fees.
Increasingly equity release has been seen as a way to reduce potential inheritance tax issues, although this may well be confined to the higher value £1m plus homes once the new IHT property rules come into effect. In our experience however, this is more a way for families to help younger generations now, when they need it, rather than later in life. We always recommend any beneficiaries are involved at meetings when discussing equity release.
Housing wealth is often people’s greatest asset. Our views are that while equity release should be your checklist as an option for retirement and estate planning, it’s not suitable for everyone. The team here can provide you with the professional financial advice enabling you to make the right decisions for your future.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
For more information on equity release, contact our specialist, Simon Claxton on 0118 923 5090 or complete one of our enquiry forms.
*Note 2plan do not allow Home reversion plans.