Lifetime Mortgages / Equity Release
An option for income?
Amongst our European neighbours, the UK is fairly unique in having such a large proportion of our population as owner occupiers.
This level of home ownership has many advantages, but it often leads to a disproportionate amount of people’s wealth being invested in housing. For example, there are many elderly people, particularly in Cornwall, who live in very expensive homes with their only income being a basic state pension. These people have inevitably spent their lives paying into their property as a mortgage, but now all their assets are tied up in this one asset.
These people now have choices:
- Of course, they can stay as put and accept a potentially low income
- They can ‘downsize’ to release some funds
- Or maybe can use their family to assist with income, in order to keep the family estate intact for eventual inheritance
However, if you are in this position but do not wish to accept any of the above options, you may consider ‘Equity Release’. In the past, these products have received ‘bad press’, mainly due to their infancy and being ‘not fit for purpose’, where customers were treated unfairly. Nowadays however, the regulation of these products has been overhauled and advisers now need to be duly qualified to give advice in this area.
The most common Equity Release product is a ‘lifetime mortgage’. This is pretty much ‘as said on tin’, where the client takes out a mortgage on their current property, with no end date. The mortgage term ends either on death of the client (or joint clients), or when they move into permanent residential care. The interest on the mortgage is either ‘rolled up’ and added to the outstanding balance, or can be paid monthly, therefore protecting the equity for inheritance. Client’s can then use the released equity to spend however they wish, be it on home improvements or a family holiday.
It must be noted that many schemes now have ‘minimum inheritance’ protection, where the lender will guarantee an inheritance to whoever the estate passes to at the end of the term.
There are countless options in this area and our qualified advisors at ‘Allshore Associates’ can help guide you through the advantages and disadvantages of each. If you wish to discuss which options may be valid for you or your loved ones, please give us a call, drop us an email or pop into the office.