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Claire Barker, chairman of the Equity Release Solicitors Alliance
HOMEOWNERS nearing retirement say the credit crunch has wiped an average £27,250 off the value of their home, but more than 1.3 million still plan to use their property to fund their retirement, according to insurer LV=.
The recession has failed to dent people’s confidence in the long-term value of bricks and mortar, says Vanessa Owen, head of equity release at LV=. “With house prices steadily recovering, the over-50s’ are more confident that their home can still play a big part in helping to finance their retirement.”
Many homeowners are consciously saving less into a traditional pension scheme because they plan to unlock the equity their home instead.
A popular way of turning your property into a pension is to sign up to an equity release scheme, now offered by more than a dozen insurers, including market leader Norwich Union and LV=.
Equity release schemes allow you to unlock the capital in your property and draw it as a tax-free lump sum or regular smaller sums.
Under the most common type of scheme, lifetime mortgages, interest on the loan rolls up and is repaid along with the capital when your property is sold after you and your partner die or go into care.
You should explore the alternatives to equity release, such as downsizing to a cheaper property, says Claire Barker, chairman of the Equity Release Solicitors Alliance. “Many elderly people don’t want to downsize, because they want to stay in their existing home. The attraction of equity release is that lenders guarantee you can stay in your home for the rest of your life, although you are still free to move if you wish.”
Most plans also offer a “no negative equity guarantee”, so that even if property values collapse you can never owe more than your home is worth
You should talk through your decision with close family members, who stand to lose a chunk of their inheritance if you take out equity release.
Tom McPhail, head of pensions research at Hargreaves Lansdown, warns against building your retirement plans entirely on bricks and mortar. “As we have seen lately, relying on rising house prices is risky. You should back this up by investing in a pension, or tax-free savings such as Isas.”
By Harvey Jones
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