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Building and protecting your wealth

Equity Release to Combat Pension Shortfalls

Even though it’s never a good idea to count on your property as the sole means of providing income for your retirement, there are a few different ways – such as equity release – that you can tap into so your home can provide additional money if your primary savings and investment methods fall short.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Retirement and equity release

There are constant changes being made to pension savings and the way you can take your pension income at retirement – with NHS professionals also managing NHS pension guidelines. So, even though you could have been regularly reviewing your accounts, you could end up with a gap between what you need and what you have saved. Property wealth becomes essential at this point

As private property wealth has hit record high levels, the average homeowner might have more wealth than they may realise. Accessing the accumulated equity in your home could completely change your retirement plan (in a good way) and let you retire earlier than previously planned. 

People in older age groups are best positioned to access equity in their home as they have typically owned their property longer, allowing more time for the bulk of the mortgage to be paid off, freeing up equity for the homeowner.

How equity release works

Equity release enables you to borrow money against your property, and you won’t need to make any repayments while you’re still alive and the loan is repaid by the sale of your property after your death. If there are any profits from the sale, it will be passed on to your loved ones.

There are a range of equity release products and usually you can access up to 60% of the value of your home. You can choose from a lifetime mortgage or a home reversion:

  • A lifetime mortgage is a loan you take out on your home while you still own the property. Making payments during the term of the loan (before death or admittance to long term care) is not usually required, but the interest accrues and unpaid interest is added on top to be repaid at the end of the loan.
  • A home reversion requires you to sell a portion or your whole home in exchange for either a lump sum or periodic payments. The value assigned to your property is usually less than what it would sell for on the open market, but barring any further need to sell more of your home, the part that you own will always stay the same even if property values change.

Is equity release right for you?

Equity release could be a great option to help you live the lifestyle you want after you stop working. If you’d like to learn more about it to help you decide if you should incorporate it into your retirement plan, get in touch with your trusted Dental & Medical Financial Adviser today.

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