The number of Pensioners unlocking money from their homes continued to increase during the first quarter of this year as homeowners were tempted by new and innovative equity release plans, research has indicated.
The growth in the equity release sector has been attributed to the growing popularity of “Drawdown Plans” which enable you to unlock money in a more strategic way, releasing equity in your home when you need it, from a pre-arranged Cash Reserve.
The typical Drawdown Equity Release Plan allows you to take a relatively small initial lump sum of say £10,000 which is paid free of tax and can be spent as you wish. At the same time, a ‘Cash Reserve’ is set up, for an amount of your choice, subject to the provider’s maximum. They work in a similar way to an overdraft in the way that you don’t have to use it and providers only charge interest on money withdrawn from the Cash Reserve.
Funds can normally be released from your cash reserve within days direct to your bank account. Some people use the reserve as a regular income, paid monthly or annually to boost their pension. Others use it when required to fund holidays or for life’s little emergencies. As the release of money is spread over time the schemes are far more cost effective than traditional schemes that released equity as a single lump sum.
No repayments of the amount borrowed are required during your lifetime. Instead, interest is added to the loan throughout your lifetime, with a guarantee that you can never owe more than your property is worth, regardless of how long you live or what happens to property prices. The loan plus any interest is repaid after your death from the sale proceeds of your property. There are also products available that allow you to pay the interest each month, or to even overpay up to 10% of the capital back each year. With most equity release plans you remain the full owner of your property and the lifetime contract guarantees that you can remain in your home for life.
For those who would like to guarantee inheritance for their loved ones, the ‘Protected Equity Guarantee’ available on some plans will ensure that a fixed portion of your property’s value is protected and left in your estate for your loved ones. New equity release plans are also available also allow to release a much higher amount of equity based on your health or lifestyle.
The equity release market is far safer than it used to be, given the protection afforded by the Financial Conduct Authority as well as the industry body the Equity Release Council, which was set up for the protection of plan holders.
Of course, that doesn’t mean that it will automatically be right for you, as there can be more suitable alternatives. The key is to discuss your options with an equity release specialist adviser who will explain all your options and allow you to make an informed choice. I recommend you involve your family in the decision and attend meetings with one or more of the family members present. If you and any of your family members want to find out more about using your home as capital, please contact me on 01204 884545. Alternatively, click here to fill in our contact form and we will be in touch.
Equity released from your home will be secured against it.