Should you consider Equity Release Finance Now?
The family home is often the single, biggest purchase a person will ever make and as such decisions relating to it can have major implications for the family finances, especially for people who are nearing, or in, retirement and know that their main income stream will soon be coming to an end. Some people may be happy to downsize and move to a new home, but many people would prefer to stay where they are and for these people equity finance could be a great option for turning the house you love into cash you can use as you want. If you are thinking about taking out equity finance now, here are some points to consider.
What do you want from equity finance?
The concept of equity finance has been around for a very long time, but it has really moved forward over recent years and there are now all kinds of options for all kinds of needs and wants. This means that the more precise you can be about your reasons for using equity finance and what your ideal equity finance product would look like, the greater the chance of you finding your perfect match (or something very close to it).
For example, if you would prefer to stay in your own home for now but are open to the possibility of downsizing at a later date, perhaps when grandchildren are older and need a lower level of “hands-on” care, then you might want to look at products with “downsizing protection”, which basically allow you to repay the loan if you decide you wish to move home in the future. There are also products with a “compassionate clause”, which basically allows a surviving partner to repay the loan in full, should they wish, within 3 years of their partner dying or moving into permanent care.
Do you want to seal in a low interest rate?
Opting for a fixed-rate product right now could turn out to be a very astute move further down the line. At this point in time, interest rates are just about as low as they can be, which means that, realistically, the only way they can go is up and if you're old enough to be thinking about equity release then you're presumably old enough to remember the double-digit interest rates of the 1980s. Of course, there is no guarantee that these will come back, now or ever, but there is also no guarantee that they won't so it might make sense to lock in a good deal now, especially with Brexit on the horizon.
Do you want to reduce your Inheritance Tax burden?
If the current value of your estate would make it liable for Inheritance Tax, then it could make a lot of sense to convert some of the equity you hold in your home to cash which you can gift to your loved ones and thus bring the value of your overall estate below the IHT threshold (currently £325K). If you live for 7 years after giving the gift, then it becomes tax-free and even if you don't, the longer you live the less IHT will eventually be payable on the gift. While you would have to pay interest on the sum borrowed, this could still work out more reasonable than the cost of IHT (currently 40%). In this context, it's also worth noting that many equity-finance providers offer a “no-negative-equity” guarantee which basically means that your heirs will never have to pay more than the value of your home when it is sold upon the death of the last surviving owner (or when they move into permanent care).
Equity Release refers to home reversion plans and lifetime mortgages. To understand the features and risks, ask for a personalised illustration.
For pensions and inheritance tax planning we act as introducers only.