Rishi Sunak grilled on support for 'mortgage prisoners'
When you subscribe we will use the information you provide to send you these newsletters. Sometimes they’ll include recommendations for other related newsletters or services we offer. Our Privacy Notice explains more about how we use your data, and your rights. You can unsubscribe at any time.
Pension aged consumers can utilise equity release products which allow them to access the equity (or cash) tied up in their homes. This can be done from the age of 55 and according to recent analysis, equity releases may become more of an integral part of retirement planning over the coming months and years.
Today, the Equity Release Council released their Spring 2021 market report which revealed:
- The total value of UK private property passed £6trillion for the first time on record at the end of 2020 as market activity recovered from the first coronavirus lockdown
- The nation’s private property wealth reached a new high of £4.6trillion, equivalent to £189,549 for the average UK property owner
- The average loan-to-value of UK property reduced to 24.6 percent the lowest level seen since before 2007/8
- Mortgage holders made an unprecedented £5.1billion of overpayments in Q4 2020, but regular repayments remain below pre-pandemic levels as some households rely on mortgage holidays
- Over-55s withdrew 46p of property wealth for every £1 of flexible pension payments in H2 2020, in line with 2019 as property plays an important role in the retirement funding mix.
The same report detailed the volume of new plans taken out rose by 19 percent during H2 2020, compared to the first six months of the year.
Across the whole of 2020, it was shown that nearly 73,000 new and returning customers were served, equating to £3.89billion of property wealth being “unlocked”.
The data from this report caught the attention of several experts within the field with Alice Watcon, the head of marketing and insurance at Canada Life, commenting: “Today’s findings from the Equity Release Council evidences not only the resilience of the industry but also the consumer’s desire for retirement flexibility.
“Property wealth is increasingly being viewed as a component of modern retirement journeys, working alongside existing pension savings, rather than being a question of using either/or.
State pension will increase but concern the sum ‘doesn’t meet’ needs [INSIGHT]
Mortgage holders to be hit by council tax hikes – what to know [WARNING]
Pension: Retirees can take £32,870 in income before being taxed [EXPERT]
“Fewer people are following the ‘traditional’ journey of retiring with a comfortable pension and no mortgage debt, and as a result, the retirement market is undergoing a significant change.
“Whilst releasing equity from a property remains a very significant decision, we know that families across the country are seeing strains on their personal finances, whether that’s from redundancy, rising living costs or caring responsibilities.
“This collective strain is likely to continue being exacerbated by the pandemic and, with the right advice, equity release has proven it can help people to access their property wealth flexibly and safely.”
Similar sentiment was shared by Stephen Lowe, the group communications director at retirement specialist Just Group, who had the following to say: “An important change is happening in the equity release market.
“Advisers are now being provided with a wider range of product features, enabling them to tailor solutions to meet more of their clients’ needs.
“We can expect to see this trend accelerating so that every client will get a made-to-measure, personalised solution that is built around their individual needs.
“The days of an off the shelf mix and match solution are numbered.
“Customers are being very well served by a combination of attractive interest rates and increasing numbers of providers and innovative product options.
“We are confident of the market’s prospects as property continues to be a major part of most people’s financial assets and using housing equity is becoming a cornerstone of their retirement planning.”
While these figures were broadly welcomed, it should be remembered equity release may not be the best option for everyone and consumers are regularly advised to consider their options carefully before taking action.
The Money Advice Service currently urges homeowners to be aware of the following considerations:
- “Equity release can be more expensive in comparison to an ordinary mortgage. If you take out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage and your debt can grow quickly if the interest is rolled up. It is worth pointing out house price growth might also be evident. Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee and a fixed interest rate for the life of the plan) in their calculations and can, therefore, lend you at a different interest rate to an ordinary mortgage.
- “For lifetime mortgages, there is no fixed “term” or date by which you’re expected to repay your loan. The rate of interest of a lifetime mortgage will not change during the life of your contract, unless you take any additional borrowing and it will only be applicable to that cycle of extra borrowing.
- “Home reversion plans will usually not give you anything near to the true market value of your home when compared to selling your property on the open market.
- “If you release equity from your home, you might not be able to rely on your property for money you need later in your retirement. For instance, if you need to pay for long-term care.
- “Although you can move home and take your lifetime mortgage with you, if you decide you want to downsize later on you might not have enough equity in your home to do this. This means you might need to repay some of your mortgage.
- “The money you receive from equity release might affect your entitlement to state benefits.
- “You will have to pay arrangement fees, which can reach approx. £1,500-£3,000 in total, depending on the plan being arranged.
- “If you’ve taken out an interest roll-up plan, there will be less for you to pass onto your family as an inheritance.
- “These schemes can be complicated to unravel if you change your mind.
- “There might be early repayment charges if you change your mind, which could be expensive, although they are not applicable if you die or move into long-term care.”
Source: Read Full Article