Markets have moved incredibly quickly in the last 2 months. The moves of 5% or even 10% which we have seen on a daily basis in equity markets is like nothing we have experienced in our lives. Some investors are panicking, others are stretched and forced to sell to meet their income requirements and the one thing we can be sure of is that any investors who sell to cash now will put further pressure on their portfolios and will almost certainly miss out on the recovery when it comes.

So what alternative is there?

If you’re over the age of 55, you may have an extra source of retirement funding from your home in the form of a Lifetime Mortgage, an equity release product. 

A Lifetime Mortgage is a type of mortgage product but with optional no monthly mortgage payments ever, which allows you to unlock some of the equity you have built up in your property. It’s a tax free lump sum which can be used for any purpose - maybe to supplement income and living costs or to give younger relatives an early inheritance. The interest is typically ‘rolled up’ and added to the amount owed each month. A lifetime mortgage is usually repaid from the sale of the client’s home when they, or the remaining applicant, dies or enters long-term care.

Over 61% of equity release solutions were used for home improvements and home modifications to allow care within the home whereas 34% was used in clearing an outstanding mortgage and debts along with help to pay regular bills.

It’s become significantly more popular among the over-55s in recent years, with £1.06 billion of property wealth accessed through these deals in the first quarter of 2020, up by 14% in the same period of 2019, according to the Equity Release Council.

The potential demand for equity release is clear. The Organisation for Economic Co-operation and Development (OECD) says that there will be more than 35 people over 65 for every 100 of working age by 2025 and the ONS says that the total pension liability of the UK now is estimated to be £7.6 trillion, which is double the level of GDP. At the same time, Savills has said that UK housing wealth is now worth more than £7.14 trillion. Equity release could therefore provide a solution for millions of older homeowners who want to boost their income and enhance their lifestyle.

What are the costs?

Equity release solutions are more expensive than a traditional mortgage, partly because the interest rates are slightly higher. However rates are at record lows and these rates can be fixed for life, so they will not increase when rates do eventually go up.

In addition Dentons Mortgages operate a Fee Free service for all equity release cases thus reducing the overall cost to any applicant.

What if you have a poor credit score or are in poor health?

You do not need to demonstrate or evidence income, there are also no health or age barriers, as long as you’re over 55, and the majority of equity release lenders do not conduct any credit scoring.

Can I lose my home?

With a Lifetime Mortgage the home remains your home. As with any home with a mortgage you would need to ensure that the property is maintained and your normal monthly home bills are paid and you do not accrue any other debt against the property. A no negative equity guarantee is also offered from most Lifetime Mortgage lenders. In the past some people eventually lost their homes as a result of having no equity as monthly interest accrued over and above the equity in their home but this is no longer the case. The no negative guarantee means that no matter how long you live in your home you will not typically owe the lender any additional money even if the property is in negative equity. The mortgage is repaid from the sale of the house when the remaining home owner dies or goes into long term care.

If you opted for a Home Reversion, another less popular form of equity release, you do sell part or all of your home to the provider, but you can still live in the house, typically rent free, for the rest of your life but maintenance and household bills are still your responsibility.

In Summary

Equity release does seem to offer an alternative for supplementing income. However we would always recommend that you take advice from your Financial Adviser.

You can read more about how equity release works.