Equity Release has been available for many years, and in different forms, and has changed greatly over that time.
There are many more lenders in the market now, and offering different types of loan as the market has matured. This has allowed borrowers to use equity release for many diverse reasons and purposes, much more broadly than used to be the case.
Previously, equity release was often used by home owners who were “asset rich, income poor”, using equity release to access the considerable value of their house to boost their income or savings. While this still happens, the uses now are much more diverse.
We are one of the very few firms who provide the required specialist legal advice for equity release and in the last few months we have seen these circumstances:
1) Paying off existing interest only mortgages. Many people have these mortgages approaching the end of a standard 25 year term, or have extended beyond that, but have no means of paying off the capital that is still owed. Equity release can provide the funds to do so, often now at a lower interest rate than the existing borrowing.
2) Remortgaging existing equity release borrowing. Interest rates are generally lower than they were ten or more years ago, and some borrowers are taking advantage of this. Caution and thorough financial advice are vital, however as it can be that the existing borrowing has an early repayment penalty that cancels out any potential advantage of a new lower interest rate.
3) Helping the younger generation to buy their own property. The difficulties of getting a foot on the housing ladder these days are well known. Many parents or grandparents are using equity release to provide the funds their children or grandchildren lack.
This sometimes also has the advantage, as some would see it, of finally getting children out of the family home!
4) More general gifting. Most people’s Wills benefit their own families. But increasingly clients want to see the family benefit from receiving money now, when it can be put to immediate use and they get to see it being so useful. Those with surplus savings, investments or income might use those, but not everyone has these and so use equity release to do so.
5) Estate planning. A more specific use of gifting can be to help in Inheritance Tax mitigation, especially where the house is the dominant asset in an estate.
6) Home improvements and some fun spending.
Equity release has funded numerous kitchens, extensions, garden landscaping, new cars and exotic holidays.
One grandmother used equity release to visit her grandchildren in Australia, as she otherwise didn’t have the funds.
7) Pension planning. Recent pension freedoms have brought wide and attractive tax efficient options. While there are limits to what can be invested, equity release can provide funds for some planning.
8) Upsizing. We have had a number of clients wanting to move nearer their family, but sometimes with difficulty where the family lives in a more expensive part of the country. One option can be to sell the existing home, which would not provide enough funds to buy a new home in the more expensive area, but to use equity release taken out on their new home to bridge the gap.
9) Access to ‘just in case’ cash. Many lenders allow the borrower to take a minimum loan now but with a cash reserve set aside, that they can borrow from in future should the need arise. Care is again needed, as these drawdown reserves are not always guaranteed, but many people are using equity release to give themselves this future option.
All the current indications are that the equity release market will continue to grow in size and diversity, bringing numerous possible planning options. Specialist financial advice remains key, and while we cannot provide it we work closely with many advisors who do.