This month's featured expert - Peter Green of St Edmundsbury Financial Services Ltd
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Peter Green of St Edmundsbury Financial Services Ltd looks at the mounting pressures on your retirement finances.
Your retirement – Why Equity Release May Be Worth Considering
We are always being told that we are living longer and enjoying healthier lifestyles. This is borne out by Government figures, which show that today, the average 65 year old male will live to age 83, and the average 65 year old female to age 85 (GAD 2006). Indeed, in the 2007 London Marathon, 1,730 competitors were aged 60 and above (Age Positive 2007).
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However, longer retirement can place mounting pressure on finances. Although individual circumstances and amounts vary, the full Basic State Pension payable in 2007-2008 was £87.50 a week for a single person and £139.60 for a couple. Therefore, for many people, unless they have provided adequately for their retirement, living longer can bring its own financial challenges.
One possible solution is a ‘Lifetime Mortgage’ sometimes known as ‘Equity Release’. This can involve unlocking the value of your home and releasing some of the money tied up in it. The equity release company agrees an amount of cash to release, dependant on your age and the property value. This may be paid as either as a lump sum, possibly with a reserve facility, a monthly income, or combination of both. Depending on the type of equity product selected, the company will either take a mortgage charge over your property or buy part, or all, of it from you. The good news is that products provided by members of Safe Home Income Plans (SHIP), come with a “no negative equity” guarantee – so the amount owed will never exceed the value of your property, and your home is safe, however long you live in it.
Monies raised in this manner can be used in many ways, for example supplementing retirement income, improving the home, helping dependents with deposits for house purchase, a holiday of a lifetime.
It is important to remember that Equity Release is not right for everyone, and there are other alternatives which should be considered – e.g. selling up and moving to a smaller property, using other investments, state benefits (your adviser will check this with you), grants and others. Releasing equity from your home is therefore not a commitment you should enter into lightly.
It is imperative that you seek Independent advice when considering any form of Equity Release. The adviser will discuss your needs with you, explore all other alternatives and ensure that you talk it through with your family, before agreeing which is the best route for you. You will also be made fully aware of the financial and legal obligations, and a solicitor is used to act for you in any transaction.
Equity Release is a growing market, with more lenders and schemes becoming available. Whilst it is definitely not right for many people, for others it is an option which is available, and may help make retirement a little more enjoyable.
Peter Green
Last updated 3rd October 2008
All views and information expressed are generic and should not be taken as any form of recommendation or advice specific to you. We strongly advise that you take professional advice before making and decisions based on this newsletter. The information is based on our understanding of current HMRC rules and practices (as at 25th February 2008) which are always subject to change. Taxation and trust advice and Cash ISAs are not regulated by the Financial Services Authority.
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