Equity release is becoming a core part of financial planning, and not just for retirement. High net worth (HNW) individuals are tapping into their property wealth too.
For decades, equity release borrowers have typically been homeowners that were once on a low salary looking to boost their retirement income, or people that earned an average salary looking to fund things like home improvements and care costs.
However, data published by the Equity Release Council shows that an increasing number of HNW individuals are choosing to release equity in later life.
Some of the factors driving this trend are that pension incomes are stretched, people are living longer and we’re saving less.
Asset Rich, Cash Poor
You might question why HNW individuals would need to borrow money against the value of their home, but many wealthy people find themselves asset rich and cash poor at retirement. You could own a property outright worth in excess of £1 million and have a substantial pension pot, but still need to access funds to maintain your lifestyle throughout later life.
What’s more, most people would prefer to continue living in their home throughout retirement rather than having to sell up and downsize. A lifetime mortgage allows homeowners to continue living in their property for as long as they wish, or until they go into long term care, and so it’s an attractive option for raising cash.
Another key factor driving interest in equity release from HNW borrowers is the option to gift money to children and grandchildren while they are still alive.
Wealthy families want to pass wealth down to younger generations to help them get onto the property ladder and move to bigger homes and equity release allows them to do exactly that.
What’s more, by gifting money to loved ones while you’re still alive, you can potentially reduce your inheritance tax liability and pass on as much wealth as possible to your family instead of to the Treasury.
Considerations like inheritance tax and gifting have brought property wealth into broader discussions around wealth management, tax planning, medium and long term financial goals.
Features and Benefits of Equity Release
Other factors that have seen the equity release sector take off in recent years include:
- Lower rates – the cost of borrowing through equity release is now much cheaper than it was a decade ago. Rates have dropped significantly from around the 7 – 10% mark down to just 2.5% on average.
- Great flexibility and more products – the range of product options has trebled in recent years and so there is a flexible solution tailored to everyone’s needs.
- Increased consumer protections – from 28 March 2022 new equity release customers are able to mitigate the costs of borrowing in later life through a new product safeguard that guarantees them the right to make partial repayments on new lifetime mortgages.
All these factors combined make equity release a very attractive option for some HNW borrowers. If you’re interested in learning more about equity release and whether it is suitable for your circumstances, please call Barry Leigh, one of our specialist equity release advisers on 07980 210953 or email email@example.com.