I hope this article finds you and your families well as we continue to wait for further information as to when current restrictions are due to be relaxed. No doubt everybody’s garden is looking better than it has done for years and all those jobs around the house which we have been putting off are now gradually getting ticked off the to-do list!
As it happens the topic of today’s update indeed relates to our homes and explores how we can look to utilise them in our overall financial plans.
This week’s article has been written by Acumen adviser Liz Warren, who (along with Phil Jones), specialises in Equity Release advice and also advises Acumen’s clients on Care Fees planning.
‘Asset rich and cash poor’. It’s an old adage but one that has become more and more relevant with the increase in the value of property over the last few decades. Indeed, for a lot us, the largest amount of our wealth is tied up in the bricks and mortar of our homes.
There are times when it would be useful to be able to access some of the value that is held within the property without having to sell the property. Certainly, with investments having been hit hard over the past few months and annuity rates still at low levels more and more people are looking at alternative ways to complement their pension arrangements to help provide a comfortable retirement.
As a result, we are seeing more and more people considering Equity Release Loans as a possible solution allowing them to realise some of the value from their homes.
Equity release refers to a range of products that give you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum or, in several smaller amounts or as a combination of both and you can use it to spend on whatever you want.
The loan does not have a set repayment date, and you can opt to make no repayments of capital or interest due or to pay only the interest on the loan. Either way the amount outstanding is only repaid when the property is sold or the borrower moves into long term care.
You always have the right to stay in the property for your lifetime and it is only on the sale of the property that the lender will get their money returned. A lot of schemes have a guarantee built into them that should the total debt be greater than the amount that the property is sold for, the lender will stand the loss and cannot ask for payment of the amount not covered from the sale.
The amount that you can borrow is based on your age and the value of your property, with the amount rising the older that you get. You can then take either a lump sum, a series of payments to provide additional income or a combination of the two. All of which are without any personal tax liability.
This type of loan has been around for a long time and was mainly offered by specialist lenders who historically charged higher interest rates. However, in the past couple of years, there have been a number of new lenders, including high street banks and building societies, beginning to offer Equity Release loans at much more competitive rates and they have introduced variations to them to make them fit more client’s needs.
The most recent type of loan to be introduced is the Retirement Interest Only (RIO) loan. With this, you can pay all or some of the interest due to the loan, which means that the debt is capped at the amount that you borrowed. This is a good alternative if you already have an interest-only mortgage that is coming towards the end of its term with no means of repaying it. Using this option will mean that the original loan can be repaid using the Lifetime loan and the interest repayments will remain in place. This means that you can remain in your home without having to find the capital to repay the original loan.
Due to the number of options and lenders now available it is important that you take Independent advice about what your options are and what route would best suit your needs. Acumen has a wealth of knowledge and experience to help guide you through this process to see what your options are if you have alternatives to raising a loan and if this is something that could help you, what would be the best product and who would be the most appropriate lender given your personal circumstances.
If you want more information or just a general chat around the subject, please get in touch.
Best wishes from Angela, Jon, and all the Acumen team.