As costs rise, more and more homeowners over the age of 55 are finding that much of their wealth is locked up in their property, when they could benefit from using it elsewhere.
Figures suggest that the total amount of housing equity available to over 55s topped £811bn last year. Even if house prices fluctuate in the current market, there is clearly a significant sum of potential cash going untapped by those who might need it most.
What is asset rich cash poor?
"Asset rich, cash poor" is a term used in finance to describe a situation where a person or entity owns valuable assets (e.g., property), but they don't have much immediate cash or liquid funds available. Someone that is asset rich, but cash poor could be sitting on six figures in the bricks and mortar of their home but be struggling with enough liquid cash to live the lifestyle they want.
This can be a challenging position to be in, with the traditional choices often being to downsize your home or take out a new repayment mortgage. However, with cash already being a concern, and term limits often restricted past the age of 55, affording new mortgage payments might be a challenge. Even with downsizing, there is the emotional consideration of leaving the family home behind.
What can you do?
For homeowners in this situation, it could be a good idea to consider unlocking the wealth that is tied up in their property, but equally it’s important to also consider whether releasing equity could be the right choice.
Steve Wilkie, Executive Chairman of Responsible Equity Release, says: “A cash injection from housing wealth is often the solution, either through downsizing or releasing equity with a lifetime mortgage. The cash influx is delivered efficiently, and the results are immediate in terms of improvement in living standards and reaching the goals set out in retirement. It’s one thing scraping by in retirement and meeting necessary needs, but most people have greater ambitions than that.”
Could equity release be the right option for you?
The UK's most popular equity release product is a lifetime mortgage. Unlike a conventional mortgage, it is your choice how and when to make payments. You could clear the interest monthly, pay a lump sum (usually up to 10% of the amount borrowed per year) as and when you can afford it, or choose to pay nothing in your lifetime. The full amount borrowed, plus any interest not paid, is repaid only when the last homeowner dies or moves into long-term care. This is usually achieved with the sale of the home.
If you’re interested in finding out more about equity release, and whether it could be the right choice for you, you can use the free calculator on this page. It will give you an estimate of the amount of tax-free cash that you could release and put you in touch with the Telegraph Media Group's partners Responsible Equity Release, who can help you with your inquiry.
Reasons people turn to equity release
Equity release doesn’t have to be used solely to provide a financial boost in retirement. People release wealth from their homes for a wide variety of reasons, including home improvements, paying off debts such as mortgages or credit cards, or helping family or friends.
Mr Wilkie adds: “Even with adequate and well-planned retirement savings, people are tapping into home equity to help younger family members who haven’t been so fortunate in the property market. By releasing some inheritance early, those gifting it get to see it in action, and also control where it’s spent.”
Find out more today
It’s important to understand that equity release won’t be right for everyone, so it’s essential to seek professional financial and independent legal advice if you’re considering this type of scheme. Equity release could affect your entitlement to certain means-tested benefits and will also reduce the value of your estate.
An adviser will be able to outline all the benefits and risks of this type of scheme based on your individual circ*mstances, to help you decide if equity release is suitable for you.
Use the equity release calculator to find out how much wealth you could release from your property.
Read more:
- How much does a loft conversion cost?
- How to calculate buying out your spouse's share of the house
- Do you pay tax on equity release?
- 5 reasons to consider equity release
*https://www.zoopla.co.uk/discover/property-news/value-of-housing/
By consolidating your debts into a mortgage you may pay more over the entire term than you would with your existing debt.
Equity release is only available to homeowners that own a property within the United Kingdom.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited.Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690. Your adviser will walk through the setting up costs of a lifetime mortgage before you decide to proceed.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Information correct at date of publication.
