Think tank, the Adam Smith Institute, believes that Stamp Duty Land Tax, to give stamp duty its full name, should be scrapped. Amongst many reasons why they think it should be abolished is the belief that its existence prevents older people from downsizing.
The prospect of paying stamp duty on a smaller home acts as a disincentive. For example, when buying a retirement property priced at £250,000, stamp duty adds another £2,500 to the cost of moving home, along with solicitor’s fees, surveys, valuations and removal costs. (Figures differ under Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)
Those looking to raise cash to bolster retirement income are increasingly turning to equity release. It represents a way of accessing some of the value tied up in a property that avoids all the costs and upheaval of downsizing to a smaller property. With equity release, although there are set-up fees, most of the costs are delayed until you die or go into permanent residential care.
It’s important to remember that equity release means in most cases that the loan you take out against the equity tied up in your property will increase over time as interest is rolled up. When you die, the property will be sold, and the loan repaid. Although interest rates on equity release plans are higher than on a conventional mortgage, with average interest rates having fallen over the last few years, equity release has become more attractive to many.
It is however important to discuss equity release with your family as it will have an impact on the amount that they are likely to inherit.
Equity release is increasingly coming to the aid of those approaching retirement with an interest-only mortgage where they do not have the funds to pay back the capital on maturity and their retirement income may not cover ongoing interest costs. Whilst they may not have paid off any capital, they have probably built up equity, offering them a lifeline that allows them to stay on in their home.
Think carefully before securing other debts against your home. Equity released from your home will be secured against it. Your home may be repossessed if you do not keep up repayments.