Equity Release Advice

What is Equity Release?

what is equity release?

We're all living longer, which is great news for everyone. It does, however, mean that those near or in retirement (particularly early retirement), need to think carefully about how they are going to ensure that they can at least make ends meet (and ideally live comfortably), without an income from employment.

The downside of downsizing

Downsizing can make a great deal of financial sense if there is a significant price differential between the home you sell and the home you buy. If there is only a small price differential then there is a distinct possibility that you will quickly find it eaten up by the costs of moving. The challenge for modern retirees is that significant price differentials tend to exist for a reason, such as lack of transport facilities. These might not have been a big issue for previous generations of retirees, who assumed that they were going to be living off their pension only until they died, but can be a very big issue indeed for modern retirees who may well still be working in some capacity and/or looking after grandchildren and who therefore are very likely to want access to the same sort of facilities as those in regular work, at least for the foreseeable future.

The perils of pensions

Pensions are still cornerstones of retirement for many people, but they have to be viewed in realistic terms. These days there are probably fewer and fewer people who can realistically expect to retire from work, start collecting their pension and live comfortably on it for the rest of their days. It's probably far more likely that an individual will either start collecting their pension and use it as a source of investment funds while they continue to live off income from some form of work, even if only part-time work (assuming they own their home outright). Alternatively, they may delay taking their pension for as long as they can to allow their pension fund to build up to its maximum possible size.

Another reason why people may wish to leave as much money in their pension pot as they possibly can is that pension pots can now be passed down through generations without Inheritance Tax being paid on them (under current rules). The equity in homes, by contrast, most definitely forms part of a person's estate for the purposes of calculating Inheritance Tax. This means that from the point of view of estate planning, it can make a great deal of sense to release the equity in a person's home before using up pension funds.

Equity release is a lot more flexible than it used to be

Equity release used to mean “home reversion”, which essentially meant that you sold a part of your home to an equity-release provider at a discount to fair-market value. This is still possible, but these days there is also the option of using a lifetime mortgage, which is similar to a traditional mortgage in the sense that you borrow against the value of your home, but which offers a lot more scope for the sort of flexibility needed by today's generation of retirees. For example, in addition to the core model of repayments being deferred until the death of the last borrower (or when they move into permanent care), there are products which allow borrowers to repay the interest, sometimes on a flexible basis, so that the capital balance remains (more or less) stable and products which allow for the whole loan to be repaid should the borrower's circumstances change, for example, if they decide that the time is right to downsize. This means that even though equity release is still a significant financial decision, there is now much more room to maneuver than there used to be.

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.