Modern Home |Pension Plan

Is Equity Release the New Pension Plan?

With traditional pensions becoming less reliable as a source of income in retirement, equity release has become an increasingly mainstream means of maintaining a decent standard of living in old age.

A Popular Solution

Over a fifth of over 50s surveyed in the first quarter of 2018 said they intend to top up their retirement with cash released from property. That’s nearly 4 million people.

Many will downsize in conjunction with a buy-to-let arrangement. A lifetime mortgage is also a very popular option, allowing pensioners to remain in their cherished forever home in comfort, while a home reversion plan is ideal for getting things in order ahead of time.

The Cost of Living Longer

Jar of Coins | Pension Plan

The record high number of homeowners unlocking some of the value of their home is in part due to the dramatic rise in house values over the last 20 years. That’s a lot of cash locked away, amounting to more than half of the nations £4bn property wealth.

Additionally, that pensions – both state and private – are failing to meet the increasing costs of living and longer life expectancy, then of course equity release is a natural solution. As such, a quarter of over 50s share a belief that property investments are more reliable than pensions.

Many homeowners continue to live independently in their own property for much longer on their pension alone.

Is Equity Release the Best Choice?

Equity release can be a sensible option for over 50s homeowners, even with an outstanding mortgage. A typical lifetime mortgage is for just over £90,000, which makes up roughly 28% of a borrower’s retirement income.

The minimum age for equity release lifetime mortgages is 55 – so this must be the youngest age of both of you, if applying as a couple. Home reversion plans usually start at 65.

What’s the Difference?

Modern Living Room| Pension Plan

A home reversion plan allows you to live in your own home rent-free, which makes it a very popular option. You must sell part or all of your home to the lender at less than the market value. In return, you will get a tax-free lump sum or a regular income to see you comfortably through retirement.

A lifetime mortgage also allows you to live without repayments while releasing equity from your home to live on. However, this is still a mortgage and as such will need repaying upon your death, or if you go into care permanently. The loan amount will be covered by the sale of the property, but may not leave much in the way of inheritance when the time comes.

While only 37% of over 50s either have or intend to seek professional financial advice, 84% of those who have said they found it essential for understanding and considering the options available to them.

You can get in touch with our friendly team on 03333 448889 to get free support and start planning for your retirement.