Why equity release might be a good option for you as you get older
According to figures compiled by independent retirement adviser Age Partnership, 27% of people took out a lifetime mortgage to pay off an existing mortgage.
Equity release has long been considered a last resort for retirees who require a boost in their retirement income.
There are plenty of photographs of white-haired couples on beaches and cruise ships.
While many people still use lifetime mortgages to fund travel and once-in-a-lifetime trips, lifetime mortgages are increasingly being used to organize family finances across generations.
According to data compiled for iMoney by independent retirement adviser Age Partnership (full disclosure: they are also our commercial partner), 32% of lifetime mortgages were taken out to free up cash for home improvements between January and May 2021.
A further 27% used a lifetime mortgage to pay off an existing mortgage, relieving financial stress by eliminating the need – but not the right – to make monthly repayments.
Intriguingly, 13% of lifetime mortgages taken between January and May of this year were for the purpose of releasing funds to be given as gifts.
It may not appear to be a particularly interesting statistic, but if you look at what’s going on beneath the surface, you can make some broad assumptions about why people are acting in this way.
The housing market is notoriously expensive, and the majority of young people find it difficult to buy their first home due to high rents.
You could argue that long-term renting is a reasonable and flexible option, but the entire financial system in the United Kingdom is built around home ownership.
Annuities were created on the assumption that you would have paid off your mortgage by the time you retired.
However, more than a decade of ultra-low interest rates, low wage inflation, the rise of interest-only mortgages prior to the credit crisis, and the failure of endowment policies to perform have exposed how shaky that premise is.
When you combine this with rapid house price increases, you have a country that is completely reliant on housing wealth.
This causes a new issue: it’s fine if you have it, but it’s financially ruinous if you don’t.
What are the options for long-term renters?
News summary from Infosurhoy in the United Kingdom.
Managing your money as you get older: Why equity release might be a viable option for you
Managing your money later in life: Why equity release might be an option that works for you
Couple want to ‘help family grow’
Essex-born Anthony Piper, 71, and his wife Jean, 68, have lived in their home for 23 years, being fortunate enough to have seen its value rise in that time. Having wondered about taking a lifetime mortgage before, they were put off by how expensive it was.
When rates dropped, they reconsidered so they could raise capital to give to their daughter.
“We wanted to be in a position to help our daughter buy a property and being able to assist her financially now gives us peace of mind,” Mrs Piper tells iMoney.
Her husband adds: “Rates are much lower nowadays, so it made sense for us to start exploring equity release again.”
The couple secured a lifetime mortgage of £517,000 to top up their own capital, gift a sum of money to their daughter and keep some money aside for home improvements.
“It’s comforting to know that we don’t have to worry about running out of money and we can stay in our home for as long as possible,” they added.
iMoney has produced a complete guide to equity release in association with Age Partnership. To request your free copy, call 0808 239 1913 or visit inews.co.uk/release