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Why do people take Equity Release?

Equity release through ERIC

There has been an undeniable squeeze on the purse strings of everybody living in the UK, but this is hitting those with fixed incomes far more. The majority of those in the UK with fixed incomes are the pensioners. Energy and food bills are rising at unprecedented levels, yet pension income is only increasing at the rates that any government feels that it can afford. This has left a lot of us in a situation where money is very tight, but they are in possession of an asset worth a considerable amount of money…..the family home.

Downsizing

The simplest and most cost effective way of release funds from a property is downsizing. This is simply selling the home you live in and moving to a less expensive property. The money received after moving costs, stamp duty, estate agent and solicitor costs will be the equity released. Although simple and relatively cheap, it is still a commitment and many people do not wish to move away from friends and family. Many simply cannot find a property cheaper than the home they already live in.

Unsecured Lending

This is always the primary way of raising funds when needed. A simple bank loan that is not secured on a property is the primary way of raisings funds for short term goals. Unfortunately the amounts that can be borrowed are based on income, and those with a small income may be unable to raise what they need. Current lending is very restrictive, and most high street lenders will only lend to those with a spotless credit history.

Secured Lending

As with unsecured lending, this will always be based on ability to pay. A lot of lenders will not accept pension income as an income they can lend on. In addition to this the monthly repayments may be too much a chunk out of the monthly income to be able to live comfortably.

Reasons for needing money

There are a myriad of reasons for people needing money in retirement, but there is a trend recorded by most lifetime mortgage lenders and the Equity Release Council.

Paying off an existing mortgage

A lot of people choose to do equity release in order to pay off an existing mortgage. Interest only mortgages always required an investment vehicle to pay them off on the due date. Unfortunately with the endowment miss-selling scandal and the current economic circumstances, a lot of these investments intended to pay off the mortgage have not raised enough money to do this. This has left a significant amount of people without the ability to pay off their interest only mortgages. Most lenders will negotiate to extend repayments, but this does not help a family that are struggling to make the interest payments in their retirement. Government benefits may also help, but those who do not qualify are also left with nowhere else to turn.

It is not only interest only mortgages that may cause this sort of problem. Repayment mortgages may also run into retirement and become a burden for some families to pay on a monthly basis. Being unable to re-mortgage due to a much smaller income will force people into looking at downsizing or looking into Equity Release.

Children and Grandchildren

A lot of our children and grandchildren are also finding it very difficult to get onto the housing ladder in today’s climate. 100% mortgages no longer exist, and with house prices still increasing at a higher rate than wage inflation, deposits are becoming huge in comparison to most people’s take home pay. The divorce rates are also leaving many of our children to face starting again after not only an emotionally difficult time, but also a financially catastrophic time. It is unsurprising that many parents will wish to help their children and grandchildren as much as possible in these times. Sometimes Equity Release is the only way to realistically help. As any equity release plan will eat into their eventual inheritance most children who are in immediate need of financial help find this to be lifeline.

Home Improvements

With aging also comes aging property, and the wear and tear of a lifetime can be pretty significant. Fixing roofs, repairing walls and modernising kitchens can be very expensive, and so becomes another major reason for looking into equity release. Some home improvement projects are not based on repairs that are needed. Many a conservatory has been built, or extension placed on the property. Other changes may be related to health. Stair-lifts are fitted or the home is made wheelchair friendly with widened doorways and ramps. This allows people to remain in the family home when the only other alternative would be sheltered accommodation.

Lifestyle Choices

Another reason for equity release is to realise ambitions that were not fulfilled during the working life. New cars, classic cars, and even motorbikes have been purchased, though not all ambitions are quite as extravagant. Holiday homes, campervan and caravans are very popular, alongside trips to see distant family in far off countries, or just a dream holiday. Young children have been taken to Disneyland by their grandparents, and world cruises have been taken in order to just sit back and relax for a while.

Living Expenses

Another major reason for equity release is to just supplement everyday living expenses. Plans are available that can be drawn down over time, and these have been utilised just to give a little extra income year on year to make the regular bills a little less of a struggle.

There is no right or wrong reason to look at Equity Release, as long as you are aware of the risks that come with such a plan. Remember that any equity release plan will affect any inheritance that you leave to loved ones. Although moving home is possible on the majority or equity release plans, it is not as simple as when you have no mortgage. Any means tested benefits you receive might be affected if you suddenly have a lump sum of cash. It is always recommended to take personalised expert advice from a wholly independent, professional adviser. The Equity Release Information Centre is one of the few remaining advice firms that are not tied to a major lending house in anyway.

To discuss your individual needs with one of our specialist Equity Release advisers, please call freephone 0800 077 6885 or use our online equity release calculator to see how much you could raise.