If you were thinking about Equity Release, you would not be alone. Sales of plans have risen over the past year and are set to rise further still.
Equity release plans were first introduced in 1965 and have since undergone many transformations however the recent steady rise can be attributed to the new pension freedoms which have widened the choice in pension solutions. This change has resulted in many considering their home as part of their retirement portfolio.
Rising House Prices
Last year pensioners freed up £4.7m a day from their properties, bringing the total value of property wealth released in 2015, to a staggering £1.71 billion. Sales of Equity Release plans rose to 23,747 in 2015 which was an 11% increase on the previous year.
Research has shown that the average customer released £72k, with Londoners releasing £128k – overall customers in the South East released an average of £84k. This increase in demand, is due to rising house prices, boosting confidence in using property wealth to increase retirement income.
Why Release Equity from Your Home?
There are many reasons for thinking about releasing the wealth from your most valuable asset.
Last year the most popular reason was home or garden improvements. 30% chose to use the money to enjoy a holiday and another 31% used the money to pay off credit cards and loan debts.
Debt in retirement is a cause for concern for some and can be a worrying and serious issue. A total of 24% of customers unlocking the value of their homes were doing so in order to pay off their mortgages. Where homeowners had once taken out endowment mortgages, with only the interest being paid off each month, these endowments failed to live up to the forecasts promised when originally sold. This in turn has left some homeowners with a shortfall and looking for alternative ways to cover the capital sum borrowed and allow them to stay in their homes.
This interest only mortgage problem is set to get worse in 2016, which makes money releasing plans all the more popular. The two main plans are open-ended Interest Only Mortgage where no payments are made by the borrower and an open-ended Interest Only Mortgage where interest payments are made to the lender. Either plan may also include a lifetime mortgage or home reversion plan.
67% of Equity Release Sales Made Last Year Were Drawdown Plans
Around 67% of Equity Release sales made last year were drawdown plans. A drawdown plan allows you to withdraw money in chunks as and when you need it, rather than taking out one big lump sum. The advantage to this type of plan is interest will only be payable on the money taken which can dramatically reduce the overall costs.
Releasing Equity from Your Home: An Important Financial Decision
Releasing equity is a decision not to be taken lightly and here at Maxim Wealth Management we have advisers who can help you make the right decision. Equity release is a lifetime commitment and will usually only be repaid when either you or your partner dies or go into long term care. It is important you seek financial advice about equity release as releasing equity from your home may affect entitlement to state benefits and your tax position. If for any reason you decide to pay back the loan early, it is possible that early payment charges may apply.
To request a FREE equity release consultation with Maxim Wealth Management please complete our Contact Form or call us direct at our London office: 0203 841 9941 or Glasgow office: 0141 764 0040