Tapping into the equity available in their property can help retirees to improve their pension provision and have more funds to enjoy those twilight years they have worked so hard for.
Many people consider their property as an integral part of their pension pot, but what does that actually mean?
The older generation of property owners typically will have a decent amount of equity tied up in their property. This is generally down to the length of time they have had to pay off their mortgage and therefore will have wealth available to them that can be accessed through equity release.
Over the last twelve months the average price of a residential property has risen by 11% and more than trebled since 1999, when the average house price was just £91,199, compared with today’s average of £282,753.
The older generation are often cash poor, despite being asset rich, which is where equity release can be beneficial in enabling homeowners to access funds in order to have a better lifestyle in their old age.
The Pension Gap
According to the PLSA (Pensions and Lifestyle Savings Association) a single person needs a minimum of £10,900 per annum just to meet their basic needs. To enjoy a more financially stable life at least £20,800 yearly income will be needed and for a more luxurious retirement, a yearly income of £33,600 is required. With the state pension currently sitting at £9,600 per annum, this amount is a far cry from even reaching the bare minimum of basic needs.
For couples, the figures are a bit different, with £16,700 needed for basic requirements, £30,600 for added security and £49,000 to have a few more luxuries.
The Effect of the Covid Pandemic
The covid pandemic effected different demographics in different ways, with the upper middle age, near to retirement age group, really feeling the impact more than many others. According to a report released by Scottish Widows, 18% of this age group expressed that they were very worried about having sufficient funds for retirement following the pandemic.
Taking this into account it is not surprising that there has been a recent surge of homeowners opting to use equity release finance to access cash that is tied up in their property. But what options do people looking to use equity release have? A one-size-fits-all approach is not viable, and each case needs to be looked at and tailored for the clients individual needs.
What are the Options?
The most obvious option to access the equity in your home is to sell up. This however means that you will need to find a new home to live in so may not be the best path to take.
There are three typical options that you will want to consider, namely, downsizing, a retirement mortgage (interest only) or a lifetime mortgage (equity release).
The choice that is the best for you will be determined on your personal situation with each option having it’s benefits and drawbacks.
Lets look at the pros and cons:
- Downsizing – typically the simplest solution, downsizing does not involve any borrowing. However the negatives could be that you are forced to leave a home with lots of memories, or you may have to even relocate to another area. Moving will also incur its own costs, such as legal fees, admin fees.
- Retirement Interest Only Mortgage – for those who are able to make small monthly payments an RIO may be the perfect lending vehicle. This would however involve an affordability test which may exclude some clients from this type of borrowing.
- Equity Release – Also known as a lifetime mortgage, equity release involves no monthly payments which means affordability is not an issue. The accessibility of equity release is attractive but can result in the overall cost being more than a ROI and have a bigger impact on the value of the clients estate.
Consult a Broker
To ensure you make the right choice it is always advisable for you to employ the help of an experienced equity release finance broker who can help you to find the best later life lending solution for your personal circumstances.
A broker worth their salt will go through each and every option and explain the pros and cons so that you are fully informed before making a decision.
Most brokers will also have access to lenders not available to the public and therefore are able to find the best deals on the market for you.
Craig Upton supports UK businesses by increasing sales growth using various marketing solutions online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to rank in organic search. Craig is also the CEO of iCONQUER, a UK based SEO Firm and has been working in the digital marketing arena for many years. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, djkit.com, UK Property Finance, Serimax and has also supported UK doctors, solicitors and property developers to gain more exposure online. Craig has gained a wealth of knowledge using Google and is committed to creating new opportunities and partnerships.
