With life expectancy increasing, people are becoming more conscious of their retirement and how they can ensure they have enough funds to see them through comfortably in their later life. Particularly now if retirees live longer than they expect, they can be left with little left in the pot to cover any care they may need. Equity release is becoming more popular as a signifiant number of older people have more money in their property than they have in their pension plan.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
Property remains a goldmine
There are three main reasons why people are considering Equity Release to unlock wealth:
- longer life expectancy
- rising cost of retirement
- increasing levels of debt
It is common these days to find that over 55 year olds have a greater value of wealth within their property then when comparing to the combined pension savings of a couple.
According to research by Equity Release Solicitors Alliance, 12% of adults in the UK would definitely use Equity Release to generate funds for their retirement and 20% said they would consider it.
Equity Release is particularly worth considering if leaving assets for inheritance purposes isn’t high on your agenda. If so, why not make your money work better for you in retirement.
Even if you want to pass down some of your wealth to your next generation, Equity Release is a flexible way to add value to your retirement plan with whatever you feel comfortable with.
Equity Release can also be used for wider financial planning opportunities such as:
- tax planning
- debt consolidation
- home improvements
- gifting money to children, or grandchildren to help them realise their dreams
How does Equity Release work?
The amount of money that can be released from your property depends on your age, property value and health conditions.
Equity from the property is essentially released with a Lifetime mortgage, where:
- you don’t need to make any monthly mortgage repayments
- you retain complete ownership of the property
- the fund you release is tax-free
- the funds can be spent how you choose
Interest still accuses on the loan and is added to the total amount you owe. The loan value, including the capital and interest becomes payable at the end of the plan, which is usually upon your death, or when moving into long-term care.
Some arrangements enable you to make repayments, to minimise the interest from accusing, but this is optional.
Also, some options enable the loan to be repaid in full within a certain number of years, without any early repayment charges, meaning that it is viable to make Equity Release part of a short-term or temporary solution to capitalise on the wealth in your property.
Is Equity Release right for you?
It is expected that more people will look to use Equity Release in the coming years, because many baby boomers are not financially prepared enough for when they finish work. A signifiant number are reaching retirement age and still have mortgages that are no longer affordable, or they are unable to find a lender that will renew the policy.
Primarily, Equity Release could be right for you if you know you have wealth in your property and your pensions and savings are not sufficient to cover the lifestyle you would like in retirement, or need if your health deteriorates.
In addition, a Lifetime mortgage can be a beneficial factor in Inheritance Tax (IHT) planning, as it is possible for it to reduce your estate value. This is something that needs to be discussed with your financial adviser.
However, like all financial planning opportunities it doesn’t suit everyone and there may be other solutions worth exploring before Equity Release.
Interested to find out if Equity Release is right for you?
Dental & Medical Financial Services have been helping doctors and dentists with financial and retirement planning for over 25 years. Call to discuss your options with Darren:
Tel: 01403 780 770
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