Page 46 - Worthing Lifestyle Jul:Aug 2019
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 Raising Money from your Home
Here Tish Hanifan, Founder of the Society of Later Life Advisers, offers some helpful advice ... We are an ageing population and as a consequence people are living longer in retirement than in previous generations - this is clearly a welcome situation... However, for many people in retirement, there is a significant fall in their income when they leave work and in consequence lots of older people are looking for additional sources of income.
In looking for ways to achieve this it is important to check to ensure that you have claimed all the benefits to which you might
be entitled and checked things such as you tax code to ensure you aren’t paying tax unnecessarily.
Even with all this checked there is very often a significant income gap and in these situations. Homeowners often consider whether or not they might be able to make use of their home by raising money on the equity they have tied up in it.
Equity Release (which is the widely used
term for releasing money from your home) is increasingly becoming an option which older people are considering.
The Equity Release Council (the trade body for the sector) released figures which showed that ER lending reached £3.9bn in 2018.
So, what factors should you take into account when considering if it is for you?
First of all, the minimum age requirement is 55. The basic principle is that you borrow against
the equity in your home at an agreed interest rate. There are no repayments made and
the provider recovers their money when you die or go into a care home. The repayments (including interest) are ‘rolled up’ during this time.
The 2 options available are to be given a lump sum or to have a drawdown facility (this is where you don’t take the full agreed loan amount immediately but can take it as and when you need it).
The latter is becoming more popular with 65% of new plans sold last year being drawdown and 5% lump sums.
There is also a new form of mortgage for older people which is called a Retirement Interest Only mortgage (RIO). Lots of mortgage providers now offer these, not just to those who are looking to fund their retirement,
but to people who took out interest only mortgages but who didn’t put a financial plan in place to pay this back when the mortgage came to an end.
Unlike Equity Release mortgages these have no defined end date when they have to be paid back.
With all of these products there are some potential drawbacks to consider.
Downsizing may be a problem if the property you move to doesn’t met your lenders suitability criteria.
Most importantly the interest rates will usually be higher than on a traditional mortgage and because you are not making any repayments these will ‘roll up’.
Over a period of time this can mean that the sum owed on repayment may be a lot more than the original sum borrowed
At rates of 4.5%, a £50,000 equity release loan will grow to £100,000 debt in just over 15 years.
If it is important to you to leave your children an inheritance you need to recognise that this will have a significant on the amount left in your estate.
However, you must balance against this the benefit that you are receiving money on which you are not paying monthly repayments. There is a further reassurance in that all providers who are members of the ERC have a ‘No Negative Equity’ guarantee so that you or your estate will never have a debt in excess of the value of your property.
What is clear is that it is a big decision to
take out one of these plans, particularly if you worked all your life to pay off the mortgage. Whether to proceed or not and if so, which kind of plan will best suit your needs requires careful consideration and the reassurance of the right kind of specialist advice.
You can find a knowledgeable, understanding and highly specialist financial adviser by looking on the SOLLA website. All the listed advisers have achieved the Later life Adviser Accreditation a recognised ‘Gold Standard’ in later life advice.
www.societyoflaterlifeadvisers.co.uk Twitter: @SOLLAadvice
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