Aggregrating the Best Equity Release News…

Equity release, whilst in its infancy, had the misconception that it was to be used only for funding the finer things in retirement. Of course, this remains true today - retired homeowners are taking full advantage and reaping the rewards of the vast sums of equity that they have built up over the years. However, this particular scenario depicts far less than the whole picture.

As mentioned before in this news section, the growing trend is for retired homeowners to use equity release to help their family both through difficult times and positive times, such as buying a first home.

Little mention has been made, however, of the significant proportion who are releasing equity in order to clear their mortgage to liberate themselves from the stifling nature of monthly repayments. A mortgage is usually one’s biggest monthly outgoing whilst taking out an equity release plan doesn’t incur any monthly repayments at all. Those who use equity release for these everyday purposes and bills may find they have much more money of their own to enjoy the retirement they have earned.

Many experts predict that the demographic make-up of the UK is changing quite considerably. The UK’s population is enjoying a greater life expectancy than ever before. Many different figures have been quoted but the average estimate is that the number of over-65s will increase to represent 21% of the population, some 15.1million by 2029.

For the equity release market, this has obvious ramifications. But what about the indirect ramifications?

The sharp and sudden decrease in trend for final salary pensions, along with the Bank of England’s fear that the recession will last longer than first thought, the reliability of pension funds and other investment vehicles will come into question.

The trend for equity release has been steadily upwards, regulations have become more stringent and SHIP now accounts for around 90% of equity release providers. As mentioned in this news blog before, certain members of the House of Lords are calling for equity release to be government backed as a serious retirement-finance option. This all points to equity release possibly being accepted as the answer to the problems caused by the recession. There are risks involved with equity release, as there are with other retirement plans and investments. It is about the individual getting unbiased, professional advice and then weighing up their options taking all possibilities into the balance.

Recently, with the lending criteria being constricted by most high street banks, many first time buyers find themselves in a position where the deposit required to take out a mortgage is simply out of reach. It looks as though more and more homeowners are helping to share this challenge with their children using equity release as a tool to come up with the hefty deposits.

This may be seen as a welcome hand in a difficult time and goes to show that the recession cannot stifle innovation and determination. Equity release may affect the inheritance one is able to leave but many may agree that causes like this, among the countless other reasons, are well worth it.

One of the most talked about and potentially viable alternatives to equity release is to take a bold step and downsize to a smaller property. The Office of Fair Trading recently covered downsizing as an alternative to a selling a house and renting it back. The OFT stated that:

‘Relocation may also be costly and sale on the open market may take a considerable period of time, particularly in the current climate.’

For some, house prices are back on the rise and certain kinds of house are particularly rising but this is not to say it will make the sale any quicker or the move any easier.

If you feel particularly vulnerable to the current market situation then releasing equity may well be a viable alternative to moving house for some.

The leading equity release industry body, SHIP, have seen an increase in new customers looking to release equity in their property compared to this Quarter last year. Some attribute this to the recent rising house prices along with the shortfall that some see in their retirement allocations.

The fact that drawdown mortgages are now reported to take up 51% of the market suggests equity release is being used more as a scheduled supplement rather than for lump sum purchases.

Perhaps the increase is down to more government backing in the equity release industry after Baroness Hollis’ welcome intervention at the House of Lords:

Hollis claimed it was “distressing to see people unable to finance the retirement they need, while hanging onto an asset they could use.” See our views on the speech.

More recognition from the Government about equity release’s important role to play may see an even bigger increase for the next quarter.

Baroness Hollis of Heigham recently held a discussion with the House of Lords regarding equity release. Upon reading the transcripts, I got the feeling that Baroness Hollis was pro-equity release and her Lordship was eager to get to the truth about lifetime mortgages and home reversion plans. The crux of the issue was Baroness Hollis’ viewpoint that equity release should be a viable option for those who need long term care but want to stay in their homes with the neighbours that they have come to know.

I quote Baroness Hollis:

“Does he (the FS Secretary to the Treasury) agree that well regulated equity release can help to fund the adaptions and social care that will give an older person the choice of staying in their own home, rather than going into residential care.”

Baroness Hollis hits the nail on the head with her attitude and her call for the government to put to bed safety fears about equity release will be most appreciated. Equity release can provide the money to adapt houses so that moving into care may not be the only option available. The availability of equity release gives homeowners the choice to plan their future.

Now one of the key points that come up in any discussion about equity release is definitely the issue of how equity release affects inheritance. Understandably, applicants are concerned about leaving their families in the best possible situation. Given the current and unpredicted economic situation, however, some discussion has turned to how equity release can help one’s family in the here and now; when it is perhaps needed most. Up there with typical reasons to release equity such as world travel, replacement cars and visiting family; home extensions are perhaps considered a viable reason to release equity as some families prepare to reunite under one roof in a bid to see them through the recession. This harks of good old British camaraderie in the face of adversity, which this particular writer enjoys hearing about.

Without further consultation and discussion from an FSA authorised IFA about the different types of equity release schemes and home reversion plans along with your needs, requirements and plans for the future, it is difficult to deem whether equity release is suitable for someone. However, it is a bit easier to deem whether you aren’t suitable for one of the plans. The most important rule of thumb when deeming suitability is whether or not the applicant is both willing and able to move to a smaller and less expensive house. Sentiment plays a big role in this and often applicant’s want to remain in the house they know and love. However, if they feel that moving house is no big deal then this is might be an alternative way to release equity.

Unlike other mortgages, the equity release market looks set to grow during the coming periods in the recession. The performance of the stock market and the FTSE 100 affects some of those of a pension age quite dramatically. With billions wiped off the market during the recent turmoil, the shareholders are left short changed from their investments. Some of the major shareholders are in fact pension funds and other types of mutual funds which some people rely upon for annual dividends and returns. Without these, some may be looking to secure alternative funding for their retirement. Equity release can be one of those alternatives and the market is expected to grow as the economic recession continues.

This is one of the more popular questions posed to equity release advisers across the country. Unfortunately, it can also be one of the trickiest to answers and especially without a further, in-depth conversation and consultation with you personally. How much equity you could release from your property may depend on a number of different factors that may need to be explored in-depth before a reasonable estimate could be given. These factors may include the type of equity release schemes or home reversion plans that you go for, the amount that you would like to release, your age, your property value and the amount of secured loan on your property. Remember, these are just some of the factors involved and there may potentially be many more parts to the equation.