Savings expert Martin Lewis explains equity release schemes
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Wendy Saunders has lived in her home in for the last 36 years. She has built up half a lifetime of treasured memories with her late husband and children, but feared money worries would force her out.
Wendy, 72, from Sutton Coldfield in the West Midlands, says the collapse in savings rates savaged her retirement income.
“Sadly, my husband passed away in 2011 and with interest rates falling almost to zero after the financial crisis, my savings income reduced.”
Owning a home is costly and Wendy faced a string of sudden expenses. “A difficult-to-find leak in the kitchen meant I had to have everything stripped back and the floor taken up. It cost around £20,000 and I had to dig into my savings.”
Then she needed to replace her entire roof. “I reused the old tiles but it still cost £11,000.”
For the first time in her life, Wendy had serious money worries.
She began looking around for a smaller house but couldn’t find anything she liked.
In truth, she didn’t want to move. “I have a lot of memories tied up in our home, such as happy family Christmases, dancing around the kitchen or working on projects in the garden. I also have lovely neighbours who I enjoy having a good chin wag with.”
Her daughter came up with the solution. “She said ‘Mum, just take the money out of your house. It’s worth £400,000, think of it as your savings’,” Wendy said.
Like a growing number of older homeowners, she turned to a financial services product called equity release.
An equity release lifetime mortgage allows homeowners aged 55 and over to unlock the capital sitting in their property, and turn it into spending money they can use today.
There are no monthly repayments to make, as the interest rolls up and is cleared from the proceeds of the property sale when its owners either die or go into long-term care.
They still own their home and can continue living in their home for life. Once the debt is cleared, any remaining capital can be passed onto loved ones in the usual way.
Regulated plans have a no-negative equity guarantee, so families can never owe more than the property is worth.
Homeowners took out 12,485 equity release plans between April and June this year, releasing £1.6billion of equity in total, according to the Equity Release Council.
One in five over 50s are now considering withdrawing equity from their home to take advantage of the huge rise in house prices over the last 30 years, according to new research from financial services company OneFamily.
On average, they withdraw £46,347 of capital each.
A third of equity release customers have seen their savings drop in the last year due to the inflation squeeze, on average by £6,297.
Matthew Ellis, head of OneFamily Advice, said tens of thousands have turned to equity release to allow them to enjoy life, renovate their homes or pay off debts. “Some make adaptions that will allow them to continue living at home rather than move to a retirement flat.”
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Ellis said equity release isn’t right for every situation, and advises caution in using it to cover shortfalls caused by the cost-of-living crisis. “Speak to a specialist adviser to discuss your options.”
Consider other ways of raising cash, such as claiming state benefits, downsizing, getting a part-time job, or seeking help from family.
Always talk to a solicitor and close family members, as equity release reduces inheritances.
Wendy was delighted that her family supported her decision to take out equity release, after taking advice from OneFamily Adviser.
She raised an initial £10,000, but could release more equity later. “I’ve not used the money to go on a world cruise or buy a new car. I’m really very happy with my lot.”
Instead, she has replaced her front door and porch, and had some new windows fitted. I’ve also put some money aside for future expenses such as having my boiler replaced.”
To save the borrowing from compounding, she makes interest payments of around £30 each month. “I can just afford that from my own savings.”
Best of all, equity release means Wendy can stay in her beloved home. “I can now relax and enjoy my life.”
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