Is Equity Release for you?

Is Equity Release right for me?

In today’s financial climate where many pension pots fall short of what is required to sustain a stable retirement life, an increasing number of consumers aged 55 plus are turning to their most valuable asset – their home - to support their finances.

With the rise in property value, property wealth is increasingly providing more of a dependable source of funding allowing consumers to put their finances in order with a view to securing their retirement funding.

Is the Equity Release Market therefore a solution for retirement funding?

It certainly isn’t for everyone, however as life expectancy rises it may suit those homeowners who struggle on retirement with mortgage payments, settlement of debts, repairs and home improvements, or even the repayment of interest-only mortgages with no lump sum available to do so.

Since the Mortgage Market Review (MMR) fewer residential mortgages have been available to customers aged 55 and over, thus encouraging increased activity in the lifetime mortgage market, offering releases of equity in the form of a lump sum, several smaller amounts or as a combination of both. Market growth in equity release has reached its peak since 2008 and figures suggest that the MMR restrictions, the pension reforms in 2014 and more recently the ever-increasing Bank of England interest rates, all may be impacting this surge in equity release.

With two-thirds of customers opting for the drawdown of a lump sum mortgage, this demonstrates the attractiveness of using property wealth as a source of generating an alternative income when ceasing employment and hence providing sufficient capital to last one’s retirement.

So, what is Equity Release, exactly?

On an equity release you can take out a lifetime mortgage secured on your property provided it is your main residence, while retaining ownership and the right to remain in your property for life. You can choose to ring-fence some of the value of your property as an inheritance for your family. You can choose to make repayments or let the interest roll-up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care. Equity Release may not be suitable if you have dependants living with you, and you will need to use the money to immediately release yourself from any existing mortgage or loan secured against the property, to then be free to use the money left over for your other financial requirements.

Potential consumers need to consider all the options before making a decision to raise income from their home by way of equity release. This may involve considering the possibility of moving to a smaller property to release some money, considering other investments or assets to boost income, exploring entitlement to benefits, debt advice and assistance with home improvements from the local council or other agency.

Further considerations include equity release being more expensive in comparison to an ordinary mortgage and that a fixed interest rate for the life of the plan be secured. Of equal importance, is the right to be able to move the plan to another suitable property, bearing in mind that if the proposed property is of a lesser value, you may be looking at having to pay some of the mortgage back.

A lifetime mortgage will be charged out on a higher interest rate. A further consideration is that the house price growth may also be a factor and therefore important to look out for the necessary safeguards of a ‘no negative equity guarantee’ so that you will never owe more than the value of your home or leave any debt behind regardless of changing property prices.

There is no fixed term as such by which you are expected to pay back the loan and any money you receive from an equity release may affect your entitlement to state benefits. Furthermore, if you release money from your home, you may not be able to rely on your property for money at a later date if you require further funds, say for long-term care. There is a requirement to pay arrangement fees depending on the plan that is arranged and there may be expensive early redemption payments if you change your mind about an equity release mortgage. Ensure that you receive fair, simple and complete presentations and that you have an outline of all potential and associated costs.

Experience has it, that consumers who consider equity release will often go through a period of ‘soul searching’ before making their decision to go ahead. This will often be triggered by what their children or next of kin may think of their decision, or for fear that they may be considered a failure for leaving an estate subject to a secured mortgage debt. Is this really something that ought to be of concern to consumers? Are children now not already better off than their parents, or with every expectation of being so – furthermore, will not ‘part-only’ of their parents’ property value be sufficient future inheritance to see them through, or in any event will children not want their beloved parents to have the financial means to enjoy their twilight years?

How can Parfitt Cresswell help?

If you are thinking of taking out an equity release product, you should take financial advice from an independent financial adviser with a specialist qualification on recommending such products. If this is the right choice for you, the most suited plan for your needs will be suggested before we give you the independent legal advice required to carry out the associated legal work.

Should you have any queries or questions on Equity Releases, then our experienced property lawyers here at Parfitt Cresswell will be able to provide detailed guidance and advice.

To arrange your complimentary, initial consultation and speak to one of our legal experts, call 0800 999 4437 or click on the button below.

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