More people are finding themselves equity rich and cash poor in retirement and want to have the option to access the equity tied up in their home. This could help to fund a more comfortable lifestyle, provide support for children and grandchildren, to improve their property, or simply enjoy the money while they can.
Carly Buck is a Lifetime Mortgage Specialist with David Williams IFA Mortgage & Insurance Services Ltd. in Northampton. Carly has over 19 years of experience within the mortgage industry and has noticed that equity release products are becoming an increasingly popular choice with the over 55s.
“As people are living longer, they see the opportunity to access some of the money tied up in their property,”
“Historically, equity release has had a bad name due to high interest rates and falling house prices, but thankfully with the added protections created by the Equity Release Council, homeowners have a number of options available.”
The Equity Release Council. originally formed in 1991, and is an organisation that has provided oversight and supervision for providers of equity release within the UK. They created best practice regulations, such as the ‘no negative equity’ guarantee. Despite the Equity Release Council being in place, expert advice is still essential before taking steps to release money from the property.
There are several options for releasing equity. In all cases, the loan is repaid to the provider when the property is sold, which is either on death of the last surviving applicant, or moving into long term care. The remainder of the equity is then paid to the beneficiaries of the applicants.
Lifetime mortgage: The value of the property will drive whatever amount can be released, as well as the age of the applicants. Providers can offer a lump sum or a regular income. Applicants will continue to own the property.
No Negative Equity Guarantee: This means that should the property be sold for less than the amount owed, the estate will not have to pay back more than the net sale proceeds of the property as long as it is sold for the best price reasonably obtainable.
Fixed interest rates for life: This provides peace of mind as the applicant does not have to worry about interest rate rises in the future.
Monthly payment or an Interest ‘Roll Up’ option: Many providers offer the opportunity to pay the full interest payment each month or a lower amount. If the applicants cannot or does not want to pay any of the interest, the interest will ‘roll up.’ This means it will not be paid during the life of the mortgage but is added to the loan.
Drawdown facility: The full amount available does not have to be taken initially; part can be taken at a later time.
Moving Home: It is possible to move house and transfer the outstanding loan amount; trading down to a lower value property could involve the partial payment of part of the loan.
Retirement Interest Only Mortgage (RIO): This is a relatively new offering from the high street lenders. They are similar to traditional mortgages as the amount that can be taken is affordability assessed. Applicants are required to make monthly interest payments to stop the debt growing.
Home Reversion: This involves the homeowner selling either a full or a part share in their property to a home reversion company in return for either a monthly income or a lump sum. If the applicant decides to opt for a full reversion, the home reversion company owns the property outright.
In order to navigate the best option, a qualified independent adviser is the best asset to begin the search as they will recommend the right option based on individual circumstances.
Carly will always stress to her applicants that they should consult with their family before any decision is made, and borrow only what they need. It is also very important that legal and financial advice is sought to ensure that any decisions made fit comfortably with any longer-term financial plans and they are done so with no undue pressure.
To speak with Carly or to find out more about David Williams Mortgage & Insurance Services go to www.dwmortgageservices.co.uk or call 01604 250280.