Equity Release – Are There Any Other Options?Written on February 1, 2017 by Kirk Rice LLP
The Question:
We have been retired for 10 years and used our savings to top up our pension income. Our savings have almost gone and we need to look at our options and the only asset we have is our home. We have considered downsizing, but do not want to move. The only option seems to be Equity Release. We are concerned, this would reduce the amount payable to our 2 sons when we pass away.
Kirk Rice LLP answers:
You need to reduce your outgoings and live within your Pension Income which I would imagine is not an attractive option if you want to continue enjoying your retirement. Or sell your house and buy something cheaper (downsize) which you have stated you do not want to do. Or finally, take out an Equity Release Mortgage which is the area I will focus on. This enables you to raise money with a loan secured on your house without the obligation of making monthly mortgage payments. Any Interest due is added to the loan, which as a result will increase over time and due to compounding (paying interest on interest) the increase in the loan can be quite dramatic; typically it doubles every 10 years.
Over time you would also hope that the property would also increase in value, however, it could decrease. The mortgage is eventually repaid from the sale of your home when you have both died or need to go into Long Term Care. This means there is less and potentially no money at all to pass to your children. Whilst a concern (you need to judge how important this is) I do think your own happiness/security in retirement should be the priority – you do not get a second chance at retirement. Also, if you have to go into Long Term Care, the value of your estate may be reduced or lost totally with paying the care fees.
The financial position of your children may have a bearing; if they are financially secure, even more reason to consider an Equity Release (I suspect your children would agree). If they are not financially secure, then even more reason to try and support them via an Inheritance. But equally, given the Long Term Care risk, you could consider an Equity Release Mortgage and gift some money to them now, probably at a time when they need it the most. An adviser would normally charge a fee, and as an example, our fee is £750 for advising on and arranging an Equity Release. As I always suggest seek independent financial advice. Equity Release will affect entitlement to means tested benefits.
Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email info@kirkrice.co.uk
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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