Best Uk Equity Release

Equity Release in Retirement

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I am approaching retirement should I consider Equity Release
A recent letter from a Daily Telegraph reader (14 February 2014) prompted this very clear, short and precise explanation of Equity Release, we have therefore produced it in full below.
I am approaching retirement and my son and his wife have suggested equity release for an additional income. What does this entail?
Equity release is available to people aged 55 and over. It enables them to access funds tied up in their property, either as a lump sum or as a regular income.

The two most common ways to release equity from property are with a lifetime mortgage or an equity reversion plan.

A lifetime mortgage gives homeowners the chance to borrow money, secured against their home. By taking this approach, people retain full ownership of the property and do not have to make monthly repayments. The amount borrowed, plus interest, would be paid off when the property is sold either after the owners’ death or when they move into residential care. At that time, any remaining equity is passed to the owner or their estate. But remember compound interest can mean less money is left over than you might hope.

The other option is equity reversion. The homeowner sells their home to a company, but continues to live there either for free or for a nominal rent. The company would then sell the property upon the occupant’s death or move into residential care. There would be no money left for you to use or for your heirs to inherit. You can also transfer a percentage of your home to a reversion company to raise funds. This would mean you and your heirs would still be entitled to the share retained when the property is sold.

In all these cases, you would still be responsible for maintaining the property, so need to make sure you could afford to do so.

Seek expert advice as this is a complex area for you to make a decision on. Other options, such as downsizing, might suit your circumstances better.
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The article mentions that Equity Release is available from the age of 55, which indeed it is. While everybodys circumstances will be different, using Equity Release as your first step in obtaining a retirement income or releasing the value of your property at what is still a comparatively young age may not be a wise move.

Of course equity release means that the full value of your property will not pass to your family when you die, however in an example of somebody releasing a lump sum from their property at age 55 and living to say 85, then the interest compounded over 30 years could be as much again that the original sum taken.

For this reason the lump sum available to a customer at age 55 will be a lot less than would be available to them if they were aged 70.

Finally it would be hoped that the value of your home may increase as you get older. If this were the case then you could not only release a significantly bigger sum than you would have been able to at age 55, but the impact of compound interest could be less, possibly meaning that more of the value of your property passes to your estate.

Published : 24th February 2014
Nothing in this article should be taken as personal advice and recommendation. UK tax rates and legislation are liable to change. Products, concepts, rates, legislation and rules referred to in the article above may not be current at the time you read the article.
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