Understanding Equity Release
With the rising prices of everyday life, more and more people are finding that their pension savings together with the state pension are not providing sufficient income to meet all their needs in retirement. You may have sufficient savings and assets you can draw on but If not, your home could be a good way to help boost your pension.
The UK housing market may have slowed in 2008, but this follows almost a decade of unprecedented growth in property prices. As a result, Britons own significant amounts of equity in their homes.
Your home can be used in a number of ways to generate extra income:
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Advantages
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Disadvantages
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You could rent out a room
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You could earn up to £4,250 a year (2008-9) tax free under the government’s “rent a room” scheme
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You need to feel happy about sharing your home with a stranger and consider your own safety.
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You could move to a smaller and / or cheaper property
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Use the difference between the sale price and purchase price to provide more income. Your estate could drop below the Inheritance Tax threshold (£312,000 in 2008/9 for individuals) depending on how the proceeds are used.
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You may have strong emotional ties to the house or the area. Moving house can be costly – stamp duty, solicitor’s and estate agent’s fees and removals.
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Loan from family or friends
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This would depend on the terms agreed when you take the loan. However if feasible could agree to repay the loan out of the equity from the home at death.
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No definite term, may be required to pay back at short notice.
May lead to discomfort or arguments.
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Before you consider equity release, run through the following checklist:
Have you claimed all the relevant state benefits?
Have you traced any previous pensions?
Have you considered using other savings or assets?
Have you spoken to your council to see if they could provide support helping you to make the required alterations to your home?
Have you thought about moving to a smaller property or to a cheaper part of the country?
Have you thought about renting out a room?
Would you be comfortable potentially reducing any inheritance from your property to nothing?
If you answer YES to all these questions then you may want to consider equity release. Equity release allows you to release some of the value in your home without the need to move or make monthly repayments.
These plans can give you a cash lump sum, a new income or a combination. Anything you owe to the company that sets up the plan does not have to be paid back until you and your partner have either died or moved into long-term care.