Equity Release
With the festive season behind us and families at the forefront of our minds (whether we’ve managed to see them in person or not), it seems like the perfect time to talk about the Bank of Grandma and Grandad!
We are all familiar with the Bank of Mum and Dad.
According to Saga, one third of grandparents have also given financial help to their grandchildren, donating a total of over £37 billion for education, holidays, driving lessons and house deposits.
If helping your grandchildren financially is something you have been thinking about doing but you don’t have enough ready cash in your savings, you may still be able to help. If you are over 55 and own a property, you may be able to access the equity in your property through an equity release plan. This could provide a lump sum, several smaller amounts, an income or a combination. It is then up to you how you spend it.
I think the pandemic has forced us all to re-evaluate what’s important and many people are deciding to pass on their wealth when it is most needed. They would rather see their relative enjoy the money now than leave it as an inheritance. In addition, they can see their families benefit from their wealth and enjoy that themselves.
What sort of scheme is right for you?
The most popular type of equity release scheme is a Lifetime Mortgage. You have the right to remain in your property for the remainder of your life or until you need to move into long-term care. You are guaranteed not to have a negative equity situation. This means the total amount owed will never be more than the value of the property.
In addition, for the duration of the lifetime mortgage, you can choose whether to pay some or all of the interest, or none at all. If you pay none at all, the interest will compound over time and the final debt will be significantly bigger than the original loan you take out.
Is Equity Release safe?
There have been some equity release horror stories over the years, but the industry has improved immeasurably, with many product options and competitive interest rates. In fact, according to the Equity Release Council’s most recent market report, average interest rates fell to a record low of 4.11 per cent in July 2020, with over half of products offering a rate of 4 per cent or lower, and a fifth offering rates below 3 per cent.
Equity Release Council Article
What are the downsides?
If you are considering equity release, you should bear in mind that it can be more expensive than a traditional mortgage and as there is no fixed term by which you need to repay the interest, the size of the debt will escalate over time. It may leave you short of funds or unable to claim means-tested state benefits and if you want to downsize, you may need to repay some of your mortgage.
Of course, equity release is just one way of helping your grandchildren. As with all big financial decisions, you should speak to a professional adviser with access to the whole market about how an equity release plan could affect you and discuss the most suitable option for you.
It is also advisable to discuss equity release with your family as the property is likely to need to be sold to pay off the loan (unless your beneficiaries are able to secure a suitable means of re-financing at that time). This means the value of your estate is likely to be lower than it would be if you had chosen not to use Equity Release.
Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.
Equity release can be more expensive than a traditional mortgage.
There is no fixed term by which a loan needs to be repaid so interest can escalate quickly
Releasing equity in your property now may leave you short of funds later.
Get in touch!
Email: heide@swift-mortgages.com
Phone: 01525 309300
Mobile: 07903 302895
Visit our website www.swift-mortgages.com
Find us on the Equity Release Council’s website: Equity Release Council
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