The Financial Conduct Authority has flagged up 2017-2018 as a period in which a wave of interest-only mortgages sold in the 1990s and early 2000s will reach maturity.
It estimates that almost half of these homeowners will not have the funds available to pay off their loan and that many will explore equity release as a way of finding the cash.
Whilst some may decide to downsize, others will be keen to remain living in familiar surroundings. For those aged over 55, equity release can be a good choice as it enables them to stay in their home for as long as they want to, with the outstanding mortgage loan being repaid from the cash unlocked from their property.
The most common equity release schemes are mortgage-based schemes secured against your home and repaid from the sale of your property, when you die or move into long-term care. These are known as ‘lifetime mortgages’ and allow you to take out a loan on your property in return for a lump sum. Last year, the average equity release customer accessed nearly £78,0001 from their property, with more than one in five using the funds to clear an outstanding mortgage.
Choosing the right plan
Equity release plans were in the past considered a controversial choice. However, new products that are underpinned by stricter industry standards and provide protection against negative equity now offer a better deal to many homeowners. Many people choosing equity release are opting for the drawdown type of lifetime mortgage which gives them the freedom to dip in and out of their housing wealth, and means that they can leave more of their equity intact to pass on as an inheritance to their families.
Independent professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should consider involving your children and dependants from the outset.
Think carefully before securing other debts against your home. Equity released from your home will be secured against it.
1 Key Retirement, 2017