Equity release is a way of retaining the use of your home or object of capital value whilst obtaining a lump sum by using the value of your house. The income provider will be repaid upon your death by the sale of your house.
The Financial Conduct Authority is concerned that a substantial number of mortgage borrowers are taking out interest-only mortgages and have no plans in place at the end of the mortgage term to pay off the balance. To solve this problem, they are using equity release to pay off their mortgages. In 2017, equity release was used in this way by 27 per cent of customers, suggesting that debt in later life is becoming the norm.
With customers more relaxed about using their assets to pay off debts, financial advisers need to take a more rounded view of their clients’ assets when giving advice, especially if they are nearing retirement.
Financial adviser software from providers such as https://www.intelliflo.com/ is designed to help devise the appropriate retirement plans and investment advice. With its historical data, it is technically able to compare investments and present the information to the client in an understandable way, enabling them to make a rational and balanced decision.
Researchers have noted that 2017-18 is the first of a three-peak period when a large number of interest-only mortgages will mature, with an estimated 85,000 due for repayment this year. These borrowers have limited options: they can ask their lender to extend the mortgage, at the same time switching to a repayment deal, or they can take capital from their property and use equity release as the solution to their problem.
The minimum age for equity release is usually 55, and the amount you can borrow usually depends on your age, the value of the property, and your health. Over recent years the average age of releasing equity has been 72; however, due to the current interest-only mortgages coming to an end, this is expected to drop to 65.
With the younger generation struggling to get on the housing ladder, more parents are releasing equity to help their children buy a place of their own. In 2016, 24 per cent of equity released was for the purpose of gifting cash for a deposit.