Asset Rich, Cash Poor?

Many over 55s have seen their property values increase to become their most valuable asset and an increasing number choose to use it to help them fund the lifestyle or the retirement they want.  Some do this by downsizing from their family home to a smaller property, releasing equity in the process and this is often an excellent option.   However, for some, a change of property does not suit their lifestyle or family situation. This is why equity release is growing in popularity.

Home improvements.  Clearing a mortgage or other debt.  Helping with the cost of care.  Providing your family with a gift for their property purchase.  Paying for holidays or a new car or just making day to day living easier.  According to the Equity Release Council, these are some of the most popular uses for the money released from property. 

In fact, they also said homeowners withdrew £10m of wealth from their homes every day in the first quarter of 2018, up from £4.3m in the same period of 2016.  A high degree of regulation now exists in this industry providing excellent consumer protection which, together with a low interest rate environment, has resulted in equity release being a favoured option for many people who have a shortfall in their savings.  Fixed rates for the term of the loan are currently generally available between 4% and 6% depending on the loan to value ratio and the amount a borrower requires.  This compares well with past property prices. In England and Wales combined, the ONS say average property prices have increased from around £27,000 in 1983 to £225,000 in 2017.  That’s an average annual gain of about 6% over a 34-year period and for the area around London, the figures are even higher.  It’s easy to see why Equity Release has become a popular option for some and even if house price growth in the future doesn’t replicate that seen in the past, accessing that equity might still be an excellent option for those who need, or would like more cash.  Taking independent financial advice is always recommended and with equity release it’s particularly crucial as it’s not the right answer for everyone.   Those considering equity release need to obtain a full understanding of how it works and to have the advantages and disadvantages of each scheme explained fully. 

Written by, Jed Elverson, PF Financial –