Andy Rowden, MD of Taunton based financial advisers, The Financial Detectives talks about the growth of equity release products.
Andy begins by talking about how modern equity release products are different from the past.
‘The principal is still the same: using some of the money tied up in your home to fund things you want to do in later life. You may remember horror stories of the past, where people inherited a significant debt as well as losing their parents’ property. That can no longer happen. All policies now come with a ‘no negative equity’ guarantee.
‘The market is fully regulated by the Financial Conduct Authority who also insist on additional training and certification specifically to sell equity release products.’
So why are they becoming more popular?
‘The realities of later life are changing. Few of us are lucky enough to have a final salary pension and annuity rates have diminished. Meanwhile we’re living longer and able to stay more active into later life, which means we need an income for more years. You might also find your house needs a new roof and you’d rather not blow your savings to pay for it.
‘And if you have children you’ll know how hard it is to get the deposit together for their first home. These pressures mean we have to find different ways to fund our later years, equity release is just one of the ways we can do this.’
How does equity release work?
There are two basic types of product. First, there are lifetime mortgages. These are interest only loans secured against your home. Any unpaid compounded interest plus the sum advanced are recovered from your estate. Second, there is property reversion where you are paid a sum of money in return for a share of your property. The lender gets the same percentage share of your property value (including any appreciation) when you die. There are also hybrid schemes with elements of both.’
You said there were other options.
People almost always have more options than they realise. Being over 55 or retired doesn’t mean that you can’t get a normal repayment mortgage. In fact, there’s a growing market for mortgages aimed specifically at this age group. You also have more freedom over how to manage your pension fund. And, of course, you can always downsize.
‘Whatever route you take there are costs and different implications. When we talk to our customers we always start with what they want to achieve and what’s most important to them. We never simply sell a product. The consequences of these decisions are long lasting so getting advice and taking time to consider all the alternatives is essential.
‘The measures you take can also affect your estate, which is why we offer a rounded service that includes wills and estate planning. The last thing you want to leave your loved ones is a financial and legal mess to untangle.’
Any final advice?
Equity release can be a good option for some people and is worth considering, but it isn’t the only one. Take some time and get some professional advice before you do anything. But, above all, don’t struggle on thinking you have no choice.