Shared from This is Money
A fifth of equity release plans are taken out to cover day-to-day living costs
Eleven million older homeowners have access to £811bn cash through their homes
Later in life mortgages now offer more flexibility with repayments
But equity release is not a decision to be taken lightly, experts warn
The UK's current cost of living crisis has created a level of economic hardship unseen in the country for decades. As more people are impacted, they are looking for alternative sources of cash in order to help them manage. For those that are fortunate enough to own their own homes, which could mean releasing equity from their property to cope with rising costs.
Here is an example of how using the equity in your home to cover rising costs. You can also see more case studies here.
James and Lucy are both 70 and live in Oxfordshire. They had planned to take out a £30,000 equity release loan against the value of their house to help their daughter get onto the property ladder.
But when they looked into it further, they realised that by taking more out they could pay off an existing £8,000 loan and reduce their monthly expenses.
This, they said, has helped them manage in the current crisis as they are both on fixed pensions.
'For the same interest rate, we were able to clear a £8,000 loan we pay £225 per month for, and create a bank of money we can use for holidays over the next few years… although this fund may soon be depleted by our increasing costs,' said James.'
Equity release, also known as a lifetime mortgage, is when homeowners over the age of 55 take a loan of up to 60 per cent of the value of their property. This must then be repaid, with interest, when they die or go into long-term care. However, some products do now allow the interest on the loan or the loan itself to be repaid annually throughout the term.
The pair aren't alone in using equity release to top up their day-to-day finances.
The number of new plans agreed in the second quarter of this year increased 26 per cent year-on-year when compared with the subdued market of Q2 2021, when pandemic restrictions remained in place.
Is releasing equity to cover bills a good idea?
Equity release has been around for 20 years, but when it was first launched borrowers didn't wholly understand the product and it was not fully regulated by the Financial Conduct Authority until 2016. This saw some borrowers pay very large sums in interest, sometimes more than the value of their home. The product has only recently had something of a renaissance in recent years as it has become more flexible.
At one time debt and accrued interest could only be paid off with the sale of the property, whereas now borrowers can pay off some of the balance incrementally on some plans.
At Viva Retirement Solutions we will work with you and your family members to find the right equity release solution for you. When looking at using equity release to help with debt, we can help you to look at a range of solutions to find the right one for you, and will even advise you when equity release isn't the right solution for you. With some of the lowest fees in the market, we are best placed to help you. Contact us today to see how we can help.