Pension plans face ‘significant change’ as equity release demand & property prices jump | Personal Finance | Finance
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.
“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.
“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.”