Equity release is increasingly being used by people planning for retirement and looking to unlock the money tied up in their property.
Helping to boost pension shortfall, clear debts, or provide funds in place of savings when there are none, it’s not surprising that more and more people are opting to release money from their homes in later life.
The market for equity release has almost trebled in size over the past five years, with new regulations being brought in place to protect borrowers and a large increase in the number of policies available.
Here at Simple Financial Planning we explore equity release in more detail, looking at why it’s a financial product that’s on the rise.
What is equity release?
Releasing funds from your property while remaining at home
Equity release is available if you are over 55 and want to benefit from the cash tied up in your property, tax free, without having to sell your home and downsize.
There are two main types of policy. Lifetime mortgages are the most popular, while home reversion plans are typically offered if you are over 65.
Both options usually allow you to take the money that you release in one lump sum, in smaller amounts over time, or a combination of the two. Interest is charged on what you have borrowed, which can be repaid or added on to the total loan amount.
These options also allow you to remain in your home until you die or go into long term care but they differ in a number of important ways, including who will retain ownership of your property.
With a lifetime mortgage, when you die or move into long-term care, the home is sold and the money from the sale is used to pay off the loan.
Anything left goes to your beneficiaries. If your estate can pay off the mortgage without having to sell the property they can do so.
Under a home reversion plan, you sell all or part of your property at less than its market value in return funds, but stay on in your home as a tenant, paying no rent.
You should speak to a financial adviser to find the product that’s right for you, to get you started you can download our guide to Equity Release here
Why are people turning to equity release?
Boosting pension income
The UK population is increasingly living longer.
Most people have failed to squirrel away enough savings to live off through retirement, particularly if they were self-employed and didn’t pay into a private pension.
The average person’s total pension savings pot amounts to just £30,000 according to recent figures from
Compare that £30,0000 to the £227,000 average cost of a home in the UK.
Combine it with the fact that the over 65’s boast the highest rate of homeownership and it quickly becomes clear why they would want to boost pension income with money tied up in their property.
Paying off debt and erasing monthly repayments
Many people chose to clear their debts with equity release.
A key feature of equity release plans is that they don’t require monthly repayments, so using the funds to clear your mortgage or other debts, frees up more money to fund your retirement.
Enjoying a happy retirement
You’ve spent your life working and so retirement should be a time to relax – you’ve earned it.
Whether you plan to jet off on a once in a lifetime trip, or take that cruise that you have always dreamed of, it’s your money and so you can use it as you wish.
Unlocking money tied up in your property allows you to access to funds that you wouldn’t otherwise have, especially if you don’t have a savings nest egg or have had to cover unexpected outlays.
Providing a living inheritance for your family
Equity release is also commonly used to provide a living inheritance for your family, so that they can use the funds when they need them and enjoy it before you are gone.
You might choose to give your grandchildren a helping hand to get on the property ladder, help finance a family wedding, or pay off some student loan for a relative.
A safe way to boost your income in later life
Regulated by the Financial Conduct Authority (FCA), all providers of equity release must follow strict guidelines that protect borrowers.
Over the years, as equity release has become more mainstream, a number of rules have been put in place.
The, ‘no negative equity guarantee,’ means that as a borrower, you will never owe more than the value of your property.
Most plans now also offer early repayment options, a downsizing option, and may allow you to ringfence some of the value of your property as inheritance for your family.
Key considerations with equity release
While this type of borrowing offers significant benefits, like with any big financial decision, it should not be taken lightly.
Do your research first, explain your plans to your family and speak with a trusted financial adviser.
Contact Expert Advisers at Simple Financial Planning
It doesn’t matter whether you need help with insurance, debt, mortgage, saving or investment, we at Simple Financial Planning can assist you. Our expert financial advisors come with rich experience in the industry, therefore can guide you precisely. We offer a personalized approach and help you choose the best money plan.
Call us for information on equity release; our dedicated advisors will be glad to provide all the details you need.
You can also watch our video for more information on Equity Release and get some insights from the exports to help you understand what it is all about. Simple Financial Planning is here to help and to make the process as Simple as possible for you!
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