How Equity Release can help you ride the cost of living crisis
You can do this by switching to a mortgage where you can draw down regular small sums of money
With increased energy bills, slowly recovering fuel prices and rising food costs, the current cost of living crisis is set to continue for a while longer yet. One way to help ease the financial pressure is for homeowners to switch to Equity Release as a way to pay for day to day living or to top up their savings.
Most over 55s will have invested in bricks and mortar and the equity in a home are the savings most people don’t realise they have as 74% of those aged 55 and over in the UK own their own home [1]. Further, Zoopla’s latest Value of Housing report found that there is almost £8 trillion in housing equity in the UK. [2]
Equity Release allows homeowners who are aged 55 and above to tap into their property wealth, enabling regular drawn downs to help with the cost of living, boost savings, enjoy new adventures or help out family. To be eligible you must be 55 or over and own your own home; depending on how old you are will very much depend on how much your lender will let you release, but it is usually within the region of 25%-35% of your property’s value.
Your lender will give you an initial lump sum (depending on your age, health and property value) followed by an agreed amount that you can draw down from when you need to. You will pay interest on the money you have taken and in most instances it will be added to the debt and grow to the effect of compounding, however you don’t need to take the full equity release amount if you don’t need to. This is a more cost-effective way to take money as it slows down your interest growth.
So, what does the equity release process look like?
- Your lender agreed an overall sum of money you can borrow.
- You can take an initial lump sum and keep the rest as a cash reserve.
- From the reserve you can draw down smaller amounts as you need them.
- Interest is added to the money you have drawn down, not what is in the reserve.
- You can choose to pay the interest back during your lifetime or it can be ‘rolled up’ and repaid when you pass away or move into permanent care.
Remember, the money released is yours to spend however you wish, providing you with financial flexibility and freedom. However, it is incredibly important that you seek professional financial advice before making this decision. The availability of ‘reserve’ funds very much depends on your financial circumstances at the point of drawdown and is not guaranteed. It is also prudent to understand that the interest rate for future drawdowns will be based on rates at that time and not linked to the rate secured on the initial advance.
If Equity Release is something you think you could benefit from to help take and would like more information on our Lifetime Mortgage products, please arrange a no obligation discovery call to see how the friendly team at Downton Mortgages and Financial Services can help.
A Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status. The impact of not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate.
For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,000 after 10 years assuming no repayments are made.
This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional. You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.
[1] Office for National Statistics, English Housing Survey 2019-20