According to recent studies, only 45% of UK adults are putting sufficient retirement provisions in place, while 20% are not saving at all for their retirement. If you’re approaching retirement age and don’t have enough savings or a big enough pensions pot to support you in your old age, what are your options?
If you’re a home owner, you’re in a better position than you may realise. Property is a valuable financial asset – and now may be just the right time for your home to pay its way. There are various ways in which you can make this happen.
Under the government’s Rent a Room Scheme, you can earn up to £7,500 per year tax free by letting out your spare room. This applies whether you take in short term guests through Airbnb and similar websites, renting a furnished bedroom to a long-term lodger or run a B&B or guest house from your home.
If you’ve been lucky enough to have benefited from major increases in property values over the past decades, your home may be worth a substantial amount of money now. Downsizing may achieve the twin goal of releasing some of this capital for you to live on, while allowing you to move into a smaller property that’s better suited for your needs.
Equity release is a relatively new type of financial product that’s only now beginning to move into the mainstream. Briefly, there are two ways that you can release some or all of the equity in your home:
Remortgaging your house is unlikely to be an option if you’re coming up to retirement age. Instead, if you’re aged 55 or over, you can take out a lifetime mortgage, with the option to make regular interest and/or capital repayments or to let the interest accumulate. If you choose the latter, the outstanding amount of the loan plus interest will then be due for repayment when you’ve passed away.
With different products and providers on the market, interest rates can be fixed or variable and you can borrow up to a maximum of 60% of the value of your property, depending on your age and subject to a property valuation. You can stay in your home for the rest of your life and may even be able to port the lifetime mortgage to another property.
You can choose to withdraw the equity you release from the property as a lump sum or in smaller amounts.
Rather than borrowing against your property, home reversion allows you to sell all or part of your home to a home reversion provider. Depending on the market value of the property, you could receive 20-60% of the amount you sell.
The qualifying age for a home reversion plan is 60 years, sometime 65 years, and the percentage you receive will be higher the older you are. As with a lifetime mortgage, you can remain in your home for life and may be able to move house, taking the home reversion plan with you.
Equity released via a home reversion plan can be either as a lump sum or as regular payments. At the end of agreement, after you’ve passed away, the property is sold and the proceeds of sale divided according to ownership.
One tell-tale sign of the soaring popularity of equity release products is the rapid growth of this market sector – 34% last year alone! With major operators including Aviva, Legal & General, Santander and Nationwide offering equity release products, it’s a perfectly viable option for many elderly home owners and certainly worth checking out.
If you’re thinking of finding out in more detail what’s available and whether equity release could be the answer to your pensions provision shortfall, taking professional advice is essential. Speak to a specialist residential conveyancing solicitor (such as this one) with experience in this field and make sure that both your adviser and the equity release provider are registered with the Financial Conduct Authority (FCA), for your own protection and peace of mind.
Finally, take a look at the Equity Release Council website (ERC) where you’ll find a wealth of useful information and FAQs. This industry body has an important role to play in setting product standards and enforcing the integrity of Equity Release products, while providing safeguards and guarantees for customer protection.