Property wealth can play an increasing role in delivering the money needed both ahead of, and into, the retirement years…
The old-established view that income in retirement will be largely based on pensions may not hold true anymore. Fortunately, other funding options do exist, and one route is through property wealth, where homeowners could:
■ downsize to a cheaper property to raise funds.
■ remortgage their existing home (if they meet the age and affordability criteria) via a later life mortgage product – which would require monthly payments.
■ take out an Equity Release mortgage (if the homeowner is 55+), which provides funds, and allows them to stay in their home.
– No affordability criteria to meet.
– Can opt to not make any monthly payments against a, generally, fixed interest rate deal.
– You can potentially benefit from a better deal if you have a qualifying medical condition.
– The provider of the loan would reclaim the capital (and any accumulated interest) through the sale of the property, once the final planholder dies or moves into long-term care.
– There are also client protections in place if a plan is taken out via a lender aligned to the Equity Release Council
Whilst we focus on equity release in this article, it may not be the best route for everyone, and other options do exist.
Equity Release marketplace
If you want to get a feel for the total property value out there, UK property wealth held by homeowners aged 55+ stands at almost £3 trillion.* To put this figure into perspective, all outstanding regular mortgage lending is less than half that amount, at £1.4 trillion!**
So, it probably comes as no surprise that an increasing number of lenders are now entering this sector. This has resulted in a wider range of product offerings, with a sizeable part of those efforts targeted at the equity release arena.
Use of the funds – You decide
If it’s relevant for you (or perhaps your parents), it allows, for example, those aged 60 to borrow up to around 25% of the home’s value, rising to about 55%, if aged 90+. Also, do consider involving your children in the decision-making process, if applicable, since an equity release plan would reduce the value of your estate.
As for the funds you raise, you can then use the tax-free money for anything you like, such as:
■ help to clear an outstanding mortgage.
■ enable much-needed home improvements.
■ settle debts.
■ assist with regular bills.
■ secure money to adapt the home for care needs, or to help with ongoing care costs.
(Sources: *Office for National Statistics, Wealth and Assets Survey, July 2014-June 2016 period, released February 2018; **UK Finance, November 2018)