‘Asset rich but cash poor’ is perhaps never truer than in the current economic uncertainty for many elderly people. Living in the family home which has increased in value over decades, with the mortgage paid off, is a well-deserved position. But they may be concerned now about the heating bills, cost of living, and possibly long-term care costs. All this when they also want to leave a legacy and inheritance for the family. Equity release may be an option providing help for elderly parents to combat cashflow needs this winter.
John Lamb Hill Oldridge, Equity Release experts
- In the first six months of 2022 over £3.6 billion was released by home owners from the value of their homes;
- Over 20% of equity release plans taken out with the primary purpose of covering day to day living costs (Canada Life 2022).
- The average sum released was £125,000, and for the first time in a decade the majority of new plans have been lump sum payments as opposed to drawdown schemes.
Learn about John Lamb Hill Oldridge and your equity release options
In the first of 4 articles, Anthony Seward of equity release specialists John Lamb Hill Oldridge, explains more about equity release, what to look out for and how it could be an option to combat cashflow concerns during these uncertain times.
What is Equity Release?
If your parents own their own home equity release provides either a tax-free cash lump sum or the opportunity to draw down smaller amounts of money against the value of the property.
Interest is charged on the money released. Historically when the house was finally sold, the sums released would be repaid from the sale proceeds, but there are more flexible options available today.
You can estimate how much money your parents or relatives would be able to release using our free Equity Release Calculator which requires no personal details.
The right equity release plan
There are over 300 different equity release schemes from a range of providers in what is a highly regulated market. Equity release is an option for someone aged over 55 to benefit from the wealth they have built up in their property over their lifetime, and also support those around them with cash gifts for for example, school fees or a home deposit.
There are two types of equity release schemes – or lifetime mortgages. The first, and more traditional scheme is a one-off cash lump sum also traditionally repaid when the house is finally sold with the interest “rolled up” over the lifetime of the loan.
The second option enables borrowers to avoid the costs of a lump sum by releasing money from their property, but keeping some aside to be drawn down when needed – the benefit being interest is only paid on the money that is fully withdrawn. For example, someone may release £40,000 but only take £10,000 for now, leaving £30,000 for future use. Until the rest is drawn down, interest is only paid on the £10,000 that has been fully taken.
There are two main options for repayment on both schemes: the first as outlined above is the more traditional option whereby the interest rate is fixed for life, and the interest on the mortgage is rolled up for the lifetime of the plan, and repaid to the lender when the house is finally sold. There are also easily understandable fixed early repayment charge schemes, which also make it simpler to work out the long-term costs.
Case study - Lifetime Mortgage for Care Costs
A very common reason to use equity release is to help with regular care costs. This client of John Lamb Hill Oldridge, a man in his 80s, had a £750,000 property with a £150,000 mortgage secured against it. He needed a way to pay for his increasing care costs while staying in his own home.
John Lamb Hill Oldridge secured a lifetime mortgage for him, enabling him to pay back some of the funds loaned to him from his family members. It also included a drawdown feature – meaning he could withdraw enough money every year to cover his care and living costs, without impacting funding received through his local council.
Which type of equity release is best?
If your parents or relatives are looking for a cash sum to help them through these uncertain times, then the ability to drawdown only what they need might be their best option, along with early fixed repayment charges, so that they are able to work-out the long-term costs.
However if they’re looking for a larger sum of money to perhaps gift to a family member for a house purchase, or use themselves for care costs for example, then a lump-sum option would be worth considering.
It is important to consult an expert when pursuing equity release options.
Considerations about equity release
Interest rates: it is important to know that the interest rates on equity release mortgages are higher than for other mortgages or financial products; currently they range from 2.9 – over 6%, so well worth shopping around.
Other options to fund needs: equity release will not be the right solution for everyone; it is important to take independent financial advice before taking the plunge.
Explore your equity release options
Find out about how John Lamb Hill Oldridge can help you release funds from your property to help with care costs, increase cash-flow, help with gifting and much more.
