Equity release schemes can sometimes seem like the only option when you need access to a large sum of money. However, there are some very important factors to take into consideration before committing to anything. For further information about whether equity release would be suitable for you, please read our article ‘Everything you need to know about Equity Release‘.
The growing sense of uncertainty that seems to shroud equity release schemes boils down to two possible reasons: the effects of falling house prices and lack of confidence in the provider. Dean Mirfin, of specialist adviser Key Retirement Solutions, explains “Until this year almost no-one thought of asking us what would happen if the lender went bust, for instance” and it is this nervousness about corporate security that has held some people back, leaving them unsure of what to do next.
The key things to consider when thinking about equity release are:
- The overall value of your estate will go down if you release equity from your home – do you mind that the amount of inheritance you leave will be lower?
- Your tax position may change as may your entitlement to means tested benefits – will this be a problem?
- Will higher or lower property prices affect you?
- What other debts do you have against your home?
- What are the alternatives? (read on for some answers!)
Having asked yourself all these questions, you may feel even more confused. So let’s take a look at alternative solutions, to help you come up with a decision that is perfect for your circumstances.
This option is one that takes a certain degree of humility, but could be hugely beneficial to all parties involved. Why not consider borrowing the money from other family members? The agreement would work in much the same way as if you were to take out a lifetime mortgage with an equity release firm, but instead a family member would be the one buying part or all of your property. The benefit of this is that the property essentially becomes an immediate inheritance for the family member and by signing a long term lease, you can continue to live there. What is absolutely vital though, is to get good legal and tax advice, as upon your death the property will be considered a taxable estate. Do your sums and work out whether this would be a more financially viable solution.
If your current house feels too large, for example if all your children have moved away or if your health isn’t what it was and you struggle to keep on top of the maintenance, then why not consider downsizing. The benefit of this is that although there will be costs involved with moving e.g. estate agent fees, solicitors fees, stamp duty fees, removals etc. it is nothing in comparison to the savings you’ll make in the long run. Quite simply, by downsizing you won’t need to borrow any money and consequently no interest will be building up.
Sell and rent
This option isn’t for everyone and there are both disadvantages and advantages to it, but it is worth considering as it may well fit your circumstances. It is worth pointing out that this option is not suitable if your property isn’t worth over £400,000. So, how does it work? By selling your house, instead of releasing equity from it, you can invest the money into investments, such as bonds. The income you receive from these should be enough to not only cover the rent of a new property, but also enough to fund your monthly living costs. The main disadvantage of this is that there may not be sufficient money to fund the living costs you have been used to and you may need to cut some things out. However, the benefit of moving into rented accommodation is that you will no longer need to pay out for maintenance costs, as that will be the responsibility of the landlord.
If you are only looking to find a relatively small amount of money for such things as maintenance on your property then it is worth checking whether you are eligible to receive a local or government grant. These grants are taken from the local council’s budget and are offered to many older people. Help the Aged offers fantastic advice and information about how to apply for a grant and whether you might be entitled to one.
Although not all mortgage providers will offer the option of remortgaging to people who have retired, it is worth checking with your current provider or looking around for those that do. Two advantages of remortgaging is that the interest rate will generally be lower than that of an equity release plan and you will also have a lot more flexibility. it is likely, however, that you will need to provide evidence of an income as proof that you will be able to make the monthly payments.
If you have a large house, but can’t bear to think about downsizing, then why not consider renting out the spare room? The government has introduced the ‘Rent a Room Scheme‘ that allows you to earn up to a threshold of £4,250 per year tax-free from letting out furnished accommodation in your home.
You may not realise it but you may be eligible to receive certain state or local benefits, which could provide you with enough money and consequently mean you don’t need to release equity from your home. Both the Citizens Advice Bureau and your local tax office can provide you with free advice and help determine whether you are entitled to any benefit payments.
We would recommend that you always seek professional advice before committing to any new financial agreement. a comprehensive list of qualified financial advisers can be found at www.societyoflaterlifeadvisers.co.uk.