About Equity Release
Retirement is a tricky subject at the moment. The cost of living has compounded existing issues with those of pension age, including the freeze on the triple lock. With some struggling to afford their retirement, and others worried about their future plans, alternative funding methods for later life have become of key importance.One product that is growing in popularity amongst those of retirement age is the equity release – a form of advance loan that enables them to leverage the biggest asset they own. But what is it, and how is it such a popular strategy in later life?
What is Equity Release?
To understand the growing trend amongst older homeowners, it is first important to understand how equity release works. Equity release is a form of financing, whereby a homeowner over the age of 55 can receive a portion of the equity they have in their home as a lump sum or monthly payment. The value of this equity is recouped from the sale of the home in the event of their passing, or passing on to a care facility.
Types of Equity Release
There are numerous different kinds of equity release, each of which have their own terms and conditions, but the most common form is known as a ‘lifetime mortgage’. Successful lifetime mortgage applicants receive a portion of their home’s value in advance, with a fixed interest rate. They do not have to make any payments on this sum, but can elect to make monthly repayments – even if just to pay the interest.
Benefits of Equity Release
Many people choose equity release in later life because it provides them with a flexible payment plan that can fit their budget. Additionally, equity release allows homeowners to keep the majority of their property while still receiving periodic payments. Equity release also offers peace of mind since homeowners know they will not be required to mortgage their home again in the future.
Increase in Adoption of Equity Release
The increased prevalence of equity release programmes is due to increased demand for them, as more and more interest has been shown in such services over the last decade. In the last year alone, the amount of equity released from properties increased by £900 million, to a record £4.8 billion.
A number of factors have led to increased adoption of equity release, from the meteoric rise of property wealth in the last few years to a growing cost-of-living crisis – but these don’t describe the specific reasons that individual homeowners elect to release equity in their homes.
What are Common Reasons for Choosing Equity Release?
Later life and retirement is a valuable time for relaxation and self-discovery, with many retiring couples aspiring to explore more of the world with their new-found free time. As such, equity release is a popular route for people to create additional funds for the holiday of their dreams.
Later life also brings with it unique challenges and barriers – particularly much later on, when mobility issues may begin to manifest themselves. Equity releases are a handy way to fund the various accommodations that may need to be made to the home, such as the installation of handrails or a stairlift.
Paying Off Debts
Lastly, those in later life may have debts hanging over them, from mortgages to credit card debt and larger loans. In order for their pension and savings to be unaffected by the debt, many take out an equity release to pay off the debts fully.