UK house price growth over the years has delivered increased property wealth for many…
To get a feel for house price growth, let’s take a look back. In the 20-year period to Q4 2018, house prices more than tripled* (even accounting for the Crash in 2007/8) – which equates to an average growth of about 6% a year.
If you’ve benefited from this growth and want to release some of your property’s value, do remember that if you take out a plan via a lender member of the Equity Release Council, there will be a no negative equity guarantee – limiting the roll-up effect to no more than the value of your home.
Plus, you could also take-up additional financial protections as part of your plan, which might further lessen the amount owed.
That said, a sum (plus any outstanding interest) will eventually need to be repaid, but against that, do also consider that there may be further house price growth over the years that may counter this debt.
Doing the maths…
Let’s assess a lump sum Lifetime Mortgage, and apply the average amount of £96,207, at the average lump sum customer fixed interest rate of 4.87%.** If you choose not to make any interest payments, then the total amount owed would have broadly doubled in 15 years.
To lessen the financial impact, you could opt for a draw down scheme, to avoid facing interest charges on any money you don’t need at that stage. Plus (whilst you don’t have to make any monthly payments), do consider paying the interest each month. The latter, alone, would save in the realms of £30,000 against the £196,325 owed (as per the 15-year chart example), although it would require almost £400 a month in interest payments.
Continued house price rises?
For the chart example, we’ve used a more conservative 2% growth figure, and applied that to the average house price of £312,301** for a lump-sum lifetime mortgage borrower. This will then give you a feel for possible property price growth vs. the cost of the loan.
Broadly, the chart shows that the size of the remaining equity in the property after 15 years would be slightly more than at the outset. And would be even more, if the interest payments had been made each month.
Of course, you must accept that there’s no guarantee of property price rises (they could just as easily fall), and the impact of inflation would need to be considered too.
(Sources: *Nationwide, House Prices to Q4 2018; **Equity Release Council, Autumn 2018 Market Report, 1st Half 2018 data)
Understandably, these are complex issues, with a bit of crystal ball gazing thrown in, so it’s essential that you take professional advice before making any decision.
How much is your home worth?
Aside from getting it valued, you can check out the sale prices of comparable properties in your area – www.nethouseprices.com
Tracing lost or mislaid…
■ Pensions – www.gov.uk/find-lost-pension – 0800 731 0193
■ Bank, Building Society, or National Savings accounts www.mylostaccount.org.uk Bank account – 020 3934 0329 (UK Finance)
Building Society account – 020 7520 5900 (Building Societies Ass.)
National Savings account – 08085 007 007 (National Savings and Investments)
■ Insurance policies, pensions, unit trust holdings and share dividends
The Unclaimed Assets Register – www.uar.co.uk – 0333 000 0182
Information on State Benefits
To see what you may be entitled to – www.gov.uk/dwp
■ For Equity Release, we provide initial advice for free, and without obligation.
■ The contents of this article are believed to be correct at the date of publication (Jan. 2019).
■ Every care is taken that the information in this article is accurate at the time of going to press. However, all information and figures are subject to change and you should always make enquiries and check details and, where necessary, seek legal advice before entering into any transaction.
■This article is for information only and does not constitute advice. You should seek professional advice tailored to your needs and circumstances before making any decisions.