For many retirees, their home is likely to be their biggest asset so, perhaps unsurprisingly, equity release plans have become an increasingly popular way to release some of the capital locked up in a home.
Recent reports from the Equity Release Council showed that equity release lending has reached the highest figure since 2002, hitting £384.3m in the second quarter of 2015.
Yet despite the growing numbers of people that equity release has helped, research from the Equity Release Council found that many more still face financial worries in retirement. For some this means that they go without rather than asking for help. For example, the research found that some 65-69 year olds were so worried about money that:
• 21% skipped a meal
• 30% experienced stress and had at least one sleepless night
• 17% felt embarrassed that they couldn’t afford something
• 16% felt cold due to an unpaid bill.
For many, this is just not necessary. Retirement is supposed to be a time to enjoy your new freedom – when you can finally do all of the things that you didn’t have time for before. And equity release could be the way to do this – without the stress and worry of having to sell the home.
The Equity Release Council’s research found that, on average, homeowners over 55 have £241,000 of housing wealth that they could draw on.
The following is a 10 point check list when considering a form of Equity Release:
1. Consider all your options-Make sure you’re claiming all the state benefits due to you, and explore the possibility of downsizing, or renting out a room.
2. Do your sums-Complete a budget planner. Work out what your
income requirements are, and also how this might change in the years ahead
3. Check with your lender-If you’re considering equity release to pay off an interest-only mortgage, speak with your existing lender to discuss all the options they can offer. Think carefully before securing other debts against your home.
4. For home improvements-Check to see if your local authority offers any grants for the work required, is it the right solution for you?
5. Talk to your family-Discuss your plans with them. They may be able to help, or support your decision to take equity release.
6. Do your own homework-Unbiased information can be found via the Money
Advice Service Guide to Retirement (available to download from moneyadviceservice.org.uk) and on the Equity Release Council’s website
7. Take independent legal advice
8. Understand the differences-Consider the type of equity release you need. An adviser will help you understand the difference between home reversion plans (where ownership is transferred to the lender at the outset), lifetime mortgages, and any other options open to you.
9. Which features are best for you-Don’t assume that the lowest interest rate is necessarily the best. Any plan will have various features, some of which will be more suitable for you than others. (For instance, some allow you to make monthly payments to avoid the interest rolling up.)
10. Take your time and remember-Only take advice from qualified and regulated firms and ensure you’re provided with a full illustration of costs and charges.
Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.