Equity Release- the Coming of Age

Equity Release has come a long way since the nineties when loans linked to selling investment bonds and shared appreciation schemes discredited the market for a while.

Equity Release Loans are also called Lifetime Mortgages and rates nowadays start as low as 3% PA which is in response to more competition in a market which is now regulated by the FCA. Most lenders belong to the Equity Release Council which offers minimum standards such as the guarantee of the right of all applicants to stay in their property until they either opt for external care or die. So how does this type of finance work?

Available to house owners from the age of 55

The maths of it are based on life expectancy.  The mortgage company needs to make sure that they have not, across the board, lent more funds than the overall equity they have in their portfolio of loans.

Therefore, a mortgage company will ask for the dates of birth of the owners and the value of the property and then offer a certain level of debt. The debt is allocated and interest is then added to the principal amount borrowed, normally annually and on a compound basis. A customer can see in advance on their quotation how the interest will accumulate over the years.

If you are in your early sixties, then you can probably borrow about 20% of the value of your home but in your nineties, it could be as high as 50%.

There are of course many bells and whistles to suit people’s differing needs. Cash can be withdrawn as lump sums or as an income. Future drawdowns can be underwritten in advance. There is a fair amount of room for financial planning.

Why do people use equity release?

There are many reasons but the key ones include;

• To provide additional capital and income in retirement. Economic downturns may have dented pension planning but house prices on the other hand have done rather well.
• To pay off interest only mortgages that have come to end of term and cannot be replaced with conventional mortgages.
• Upsizing.
• Paying for care so owners can carry on living at home.
• One off capital expenditure e.g. home improvements and adaptions, trips of a lifetime.
• To help children and grandchildren with housing and educational costs.
• Family tax planning.

The average amount taken is about £72k (Source: Key Retirement 2015) but can be very much higher.

Of course, anyone considering equity release should take advice from a properly qualified adviser and from a solicitor. It is important to know that that you really need to raise the funds this way and that other options have been considered. Examples are shown below.

• For example, do you have any pensions left unclaimed?
• Do you qualify for state benefits or grants?
• Would downsizing be a better solution?
• Have you considered boosting income by letting a room?
• Could you economically cash in investments?

If you would like to discuss the possibility of equity release being of value to you with a specially qualified adviser, then please call us on 0207 580 155 or email danny@stirlingpartners.com. We can arrange visits throughout the South East and Midlands to suit.

We look forward to hearing from you!