As we’ll explain in this article, equity release is just one of several options that are now available to over 55s who wish to increase their income. Here at Tees our Equity Release Council member and SOLLA accredited experts are on hand to help and advise you every step of the way.
We’re all living longer and often, retiring later.
Changes to the state pension age, along with anticipated shortfalls in many private pensions, mean that we’re likely to need to look to alternative solutions as to how to fund our lifestyles in or approaching retirement - or risk relying on debt in later life.
In the past five years, the total value of debt held by the over-55s is estimated to have increased by 47 per cent and in another five years, this total value is forecast to increase by 35 per cent, rising to £397bn by 2024.
The good news is that the options to increase your income in later life are growing, becoming much more attractive – and can offer you peace of mind.
Since the government introduced pension reforms in 2015, the financial services industry as a whole - including the mortgage market – has begun to catch up with the challenges and opportunities of social change and consequently, lending criteria relating to age and retirement status have become a good deal more flexible.
Only a few years ago, there might have been a small handful of building societies prepared to lend to people of older age, however today, the options are many and varied and the previously niche equity release market has seen rapid growth and development into an industry that is now more commonly referred to as the later life lending market.
It is estimated that the UK’s over-55s currently own £1trillion in housing wealth.
- What is later life lending?
- What are the different types of later life lending?
- How does equity release work?
- Is borrowing in later life right for me?
- Is it wise with increasing interest rates to release equity to help my children's mortgage?
- Can I apply for a later life mortgage?
- What can the money be used for?
- Tees’ Solution
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Put simply, it is a mortgage offered to the over 55s that is designed to let you make use of the money that's built up in your home and help you live better in your retirement.
This is a form of equity release that lets you unlock the value in your home as a tax free lump sum of money.
Equity release is essentially like a long term loan. However, you don’t have to make monthly payments, unless you choose to, and the loan is usually repaid when the last borrower moves into long term care or dies, and you keep full ownership of the property. The maximum loan amount depends on your age and how much your property is worth.
Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.
Retirement Interest Only (RIO) Mortgage
A retirement interest only mortgage is very similar to a standard interest only mortgage, but with some differences.
The main part of the loan (capital) is usually only paid off when the last borrower moves into long term care or dies and you only have to prove you can afford the monthly interest payments.
Retirement Capital & Interest (RCI) Mortgage
Much like a standard repayment mortgage you pay back both interest and capital on a monthly basis.
The main difference is that you can borrow up to a higher age than on a standard mortgage but the product is still designed to repay your mortgage in full by the end of your term.
You’ll need to be able to afford the repayments on a monthly basis.
Home Reversion Plan
A Home Reversion Plan allows you to access all or part of the value of your property while retaining the right to remain in your property, rent free, for the rest of your life.
The plan provider will purchase all or part of your house taking into account your age and your health and will provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life.
It’s often a good idea to speak with family members or trusted friends before taking on further borrowing in later life, they can often offer support and suggest other ways you could raise money. Borrowing in later life can have an impact on inheritance amounts you leave and any state benefits or local authority grants you get.
Is it wise with increasing interest rates for parents to release equity to assist in paying off or reducing their children's mortgages?
This is a complex decision and will depend on various factors, here are some considerations:
- Helping your children may be beneficial if you have excess funds and you are in a financially stable situation. It's important to ensure that you have enough savings for your own needs and emergencies before considering assisting your children with their mortgages.
- Releasing equity from your home may affect your retirement plans. It's crucial to evaluate how using this equity will impact your future financial security, as you may be reducing the value of your estate or limiting your access to funds in the long term.
- Before considering equity release, explore other possibilities for helping your children with their mortgages. For instance, you could recommend they seek financial advice or explore other forms of financial support that may not have long-term consequences for your own financial situation.
- While helping your children reduce their mortgage loan can be beneficial, it's essential to involve them in the decision-making process. Make sure they understand the implications and responsibilities associated with receiving financial assistance.
- Releasing equity from your home may have tax implications, such as potential inheritance tax considerations.
- Releasing equity may reduce your financial flexibility. Consider whether you may need access to the equity in the future for other purposes, such as long-term care costs or other unforeseen circumstances.
Ultimately, the decision to release equity to assist your children with their mortgages depends on your financial circumstances, risk tolerance, and long-term goals. It's advisable to seek advice from a qualified financial adviser who specialises in this area of advice or a mortgage specialist who can provide personalised help and guidance on your specific situation.
Many lenders will consider applications from people aged 55 up until their 85th birthday, with some lenders offering existing customers a mortgage up to their 95th birthday.
The money released can be used for lots of different things. Some common uses include home improvements, family gifts, funding the purchase of a further property, buying a car, travelling abroad, or funding care.
Mrs Hurst needed to carry out improvements on her home and gift her daughter money to aid her in buying a house. At the time, she held a lifetime mortgage previously arranged with another lender at an uncompetitive rate of 7.19%.
In order to achieve her goals, Mrs Hurst required an urgent loan of £226,160 and a more competitive rate of interest than her existing lifetime mortgage.
Utilising a ‘whole of market’ approach, a new Lifetime Mortgage product was secured for Mrs Hurst, offering a significantly lower rate of interest of 3.92%.
As well as releasing an initial loan, Mrs Hurst released an additional £32,665 in order to fund the necessary £25,000 for home improvements and £10,000 to aid her daughter’s home purchase.
Even though the transaction involved releasing additional equity from her home, the lower rate of interest that was secured for Mrs Hurst on her new Lifetime Mortgage arrangement has resulted in a total saving of £256,049 of mortgage interest payments over a 15 year period, compared with if she had remained with her previous lender.
The savings we secured for Mrs Hurst means she is now more able to enjoy a more comfortable retirement.
Our clients come to us for many different reasons. One of these is we offer lenders from the whole market and are able to access low rates. This ensures our clients can enjoy their retirement to the fullest and get the most out of the value of their home.
Toni Chalmers-Smith is a later life lending specialist at Tees who has worked in the financial services industry for over 25 years. While fully qualified in all forms of life, health, mortgage and pension business, Toni is expert in advising clients who require later years advice, which includes investments, inheritance tax and estate planning, equity release and care fees planning. Toni works closely with Tees’ legal advisers in providing specialist advice on all areas of later life lending and also offers older clients a financial review and support service, especially if an individual or family member is unable to cope with day to day financial decisions.
Catherine Banks is an experienced solicitor in Tees’ residential conveyancing team, and specialises in later life lending conveyancing. Together Toni, Catherine and the rest of the Tees team work seamlessly together to ensure that the solutions they provide truly fulfil your needs, and are fully tailored to your individual circumstances.
Toni and Catherine pride themselves on offering a friendly, personal service which is designed to put you at ease and support you in these important financial decisions. Their approach is highly ethical; when dealing with older clients where there may be a vulnerability concern Toni can offer an advisory service and where necessary, work with a Power of Attorney and/or make an application to the Court of Protection on your behalf.
There are many advantages of having your financial advice and legal conveyancing services all under one roof:
a fast, efficient, joined-up service that is second to none
transparency in terms of our fees and any associated costs
a fully comprehensive service that is highly cost-effective
We at Tees strongly believe that financial and legal advice should take you to the stage where you can make clear and informed decisions, happy in the knowledge that you have received all the information and choices needed to reach those decisions.
Toni is a SOLLA Accredited Adviser and operates under its strict code of conduct. Both Toni and Catherine are members of the Equity Release Council: https://www.equityreleasecouncil.com/
Only specialist advisers can offer equity release advice.
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Chat to the Author, Toni Chalmers-Smith
Wealth Specialist, Wealth Management, Bishop's Stortford officeMeet Toni
- Areas of expertise
Tees supported me in my role as attorney for my elderly mother-in-law in obtaining release of capital from her house to fund her care, enabling her to continue to live in her own home. This was a protracted process requiring an application to the Court of Protection as well as advice on the equity release market and the conveyancing aspects of the transaction. Tees’ multi-disciplinary expertise meant I could find all the help I needed from the one company: Toni Chalmers-Smith as wealth specialist, Francis Gill with the Court of Protection and Catherine Banks on the conveyancing. A great team!
Mr Lawrance Lucas
I'm very grateful for the professional service that everyone at Tees has shown me: Cathy Izzard who drew up my late mother’s Will and obtained probate; Toni Chalmers-Smith for care fees planning and Allan Wright for the conveyancing. They're knowledgeable, approachable and have empathy.
Mrs Mary Pope
Toni Chalmers-Smith and her colleagues define "where there's a will there's a way". Toni demonstrated tenacity, drive and an ability to think round problems and find solutions to deliver a result. Toni and the team at Tees are a must for anyone considering financial advice.