By Nick Freeth, Managing Director, Retirement Homesearch
There’s been a growth in the equity release sector, suggesting that fewer older homeowners are downsizing and are instead using their existing homes to release money for later life. But this will not always lead to a happy ending.
Equity release is the right solution for some people. However, we must make sure that older property owners are making fully informed decisions, to avoid them sacrificing longer term flexibility and security for both themselves and their families, for short-term financial support.
Equity release can be a fantastic way of providing lifestyle funding, allowing people to do things they have never been able to afford, and that has to be a positive thing. But even people who choose to release equity at the start of their retirement – on the assumption that they are in their twilight years – could, in fact, live for several more decades, leaving themselves short of vital funds later in life.
The reality is that when someone makes a decision to release equity from their home, there are instant consequences that are not often talked about, and we want to make sure anyone who is considering this option goes in with their eyes wide open.
Here are some things you need to think about if you are considering equity release as an option:
- Be alert to the fact that you will rarely get anything near the true market value of your home through equity release. That may be a price you’re willing to pay, but for some people it comes as a big surprise.
- Find out if there are any penalty charges linked to early exit plans – i.e. if you want to exit the plan early because you’ve had a change of heart or circumstance.
- You may find there are entitlement issues concerning some of your state benefits, so make sure that you’ve checked this before you make any commitments.
- Be prepared to pay an arrangement fee – this will often equate to what you would pay an estate agent to sell your property.
There are other options available for older people looking to release money. One being downsizing to a purpose-built retirement development. We know that people who make this decision value lifestyle factors, such as friendships and a ready-made community, as much as the financial advantages.
We would recommend anyone considering their options look at getting independent advice, not linked to an equity release company, before making any final decisions.
Nick Freeth is Managing Director of Retirement Homesearch, Britain’s number one retirement property specialist.