The market for equity release market has recorded the busiest quarter for almost a ten years. Increasing numbers of people who have retired or are moving into retirement are making the decision to use the wealth tied up in their home to fund their retirement.
Equity Release Council,has recently released data indicating that total equity release lending reached £325.6 million in the second quarter of 2014 – this is a 32% year-on-year rise and the largest quarterly amount since 2004.
Furthermore, the data also revealed there were more than 5,000 new equity release customers in the second quarter of 2014, an increase of 10% on the first three months of the year which takes the total number of equity release customers in 2014 past 10,000.
This may be explained by an increase in housing prices and greater confidence in equity release as a retirement option which has allowed the average amount released to exceed £61,000 over the quarter – this is 16% more than in the same period last year.
However, a report just published by Aviva, shows that many elderly people are still unsure about how equity release plans work, which means they are unable to take advantage of this extra financial assistance in retirement.
Clive Bolton, retirement solutions director at Aviva, says:
‘Unexpected expenses and the cost of living mean some people in retirement may need to draw on extra sources of money – including equity in their home.’
This post seeks to give an overview of why equity release may be right for you and some considerations you may wish to take into account when thinking about releasing equity in your come. We also have guides about equity release here on our site and if you have any questions about releasing equity from your home, we will be happy to discuss them with you.
The idea of retirement is the end of your working life, a time to relax and enjoy yourself. However, for many people this relaxation is not possible due to credit card debts, loans and interest-only mortgages without sufficient funds to clear the capital. Furthermore, it may be that they just don’t have enough funds in place to enjoy the lifestyle they had been dreaming of.
However, an equity release scheme may be able to give the financial assistance required. Equity release allows people to draw on equity tied up in their house to raise their finances in later life – while still enabling them to live in their own home.
This can be done via a tax free lump sum, or you can opt for what is called a ‘drawdown product’ which offers smaller amounts in installments.
For more information on how equity release works in practice, please see the equity release section of our website.
Should I release Equity?
The new research by Key shows that equity release has been an exceptionally popular means to clear debts later in life. 20 per cent of over 55’s releasing equity used some or all of the money to pay off mortgages, while 30 per cent are clearing credit cards or loans.
Dean Mirfin of Key said;
“Debt is one of the biggest issues for people in retirement.This may be due to outstanding card or loan debts, an endowment shortfall, or an interest only mortgage where there is no repayment scheme.For those who might otherwise have no option but to sell their home and downsize to pay off these debts, equity release can offer an alternative. It can help people clear what they owe without the stress of having to move to a new, smaller property and can enable retirees to enjoy their later years without having debts hanging over them.”
Furthermore the research by Key outlines that in addition to using equity to clear debts, many retired people are using the money released to improve their living standards.
The research showed that two thirds of customers use some or all of the cash to make home or garden improvements and 35 per cent use the money to pay for holidays.
The average amount taken by customers rose by 17 per cent this year to roughly £65,000. The amount you can borrow will depend on certain factors factors including your age and your home’s value.Dean Mirfin said;
“Equity release is now making a major contribution to retirement planning for thousands of homeowners,”
Nigel Waterson, chairman of the Equity Release Council, said;
“Despite the commotion caused by the Budget’s changes to the retirement market, equity release lending remains not only intact, but goes from strength to strength.We are witnessing record growth as more asset-rich over-55s take advantage of products that can provide them with security and stability.”
What do I need to consider in releasing equity?
An equity release will reduce the value of your estate for inheritance and may also affect your entitlement to any means-tested State benefits. You should seek the advice of a solicitor if you decide you may wish to release equity and they can discuss this with you.
Furthermore, although the equity release market is heavily regulated by the Financial Conduct Authority with sufficient safeguards in place, it is important only to consider schemes approved by the Equity Release Council. Members of the Equity Release Council agree to abide by a strict set of rules and a code of conduct that includes structured financial and legal advice.Customers also receive a suitability report to show why a particular product suits their needs.
It is also essential to discuss your plans to release equity with your family before proceeding with equity release. As the value of your estate will be reduced, this discussion will avoid surprise and confusion later.
It is also important to choose a solicitor who is familiar with equity release and specialises in giving advise to the elderly. Here at Gibson Kerr we have excellent experience in helping clients release equity from their homes so they can enjoy the retirement they deserve.
Legal Advice on Equity Release in Scotland
For further information on equity release, please do not hesitate to contact our solicitors based in Edinburgh today on 01202 898 153 or in Glasgow on 0141 530 8829