Equity Release Is Now A Viable Option to Fund Retirement

Once an area few feared to tread, equity release products continue to gain in popularity. Data shows the equity release market surpassed £2 billion in 2017, the first time that’s happened since records began. It highlights a number of details, but chief among them is that more people are happy to use equity release to unlock their housing wealth during retirement.

As the UK’s population continues to age – official data shows the proportion aged 65 and over has been increasing since 1975 – there have been a number of changes to state pensions. The age at which you can take your pension has risen. And, while there are many ways to invest into your own private pension, fees and low interest rates mean they don’t always produce the income required to fund a longer retirement.

More Options 

As rule changes mean pensions can now be passed down to loved ones, Brits are beginning to think about the equity that’s locked in their home a little differently. Releasing some of that equity makes sense for many retirees.

The most popular type of equity release product is a lifetime mortgage. That’s where you borrow against your property, usually up to 50% of its value. The money can be taken out as a lump sum, or smaller, regular payments. Whatever works best for your needs. Interest accrues each month like a regular mortgage. 

But, unlike a normal repayment mortgage, you don’t have to make monthly repayments. Instead, the interest can be rolled into the total amount borrowed. It’s then repaid when the property is sold upon your death or when you move into a retirement home. 

Equity Release Can Make Sense

It might seem a little scary at first. But, over the average person’s life, they pay a little over £2,000 per year into their pension, less than half the sum of annual mortgage repayments. Even though pension pots grow, an average of 5% per year can often mean a pension is worth less than the investor’s home.

With an average of over £300,000 equity locked in a retiree’s property, it makes sense to take advantage of it and enjoy your later years to the full. Your property will still likely grow in value. And, while you live off some of the wealth from your home, your pension pot will also continue to grow. That will give you a larger sum to draw an income from, once you’ve taken as much as you feel comfortable, from your home.

But, just as you always think carefully about getting the right life insurance as you get older, you should also think very carefully about how you mange your finances.

A Regulated Industry

The equity release mortgage industry is regulated by the Financial Conduct Authority (FCA) and all lenders who offer equity release products must follow a code of conduct. These measures – and more – are designed to protect consumers and give them peace of mind. Handled correctly, equity release mortgages are a safe and sensible way to fund retirement, or pay for something special. 

If you think an equity release mortgage might be a good option for your future then speak to an adviser. There are many experienced financial advisers who have in-depth knowledge of the industry and can help you make the right decision.

The above article may contain affiliate links