September 24, 2023

By Fran Ivens For This Is Money


The UK’s current cost of living crisis has created a level of economic hardship unseen in the country for decades. 
Former chancellor Nadhim Zahawi previously warned that even those on £45,000 could need support with their energy bills over the coming winter: an income level higher than the UK average of £38,600.
And as more people are impacted, they are looking for alternative sources of cash in order to help them manage.
Later life loan: Equity release allows older homeowners to access some of the cash tied up in their home, with a loan that doesn’t need to be repaid until they die or go into long-term care 
For those that are fortunate enough to own their own homes, that could mean releasing equity from their property to cope with rising costs. 
James and Lucy are both 70 and live in Oxfordshire. They had planned to take out a £30,000 equity release loan against the value of their house in order to help their daughter get onto the property ladder. 
But when they looked into it further, they realised that by taking more out they could pay off an existing £8,000 loan and reduce their monthly expenses. 
This, they said, has helped them manage in the current crisis as they are both on fixed pensions.

To help readers considering equity release, This is Money has partnered with Age Partnership+, independent advisers who specialise in retirement mortgages and equity release. 
Age Partnership+ compares deals across the whole of the market and their advisers can help you work out whether equity release is right for you – or whether there are better options, such as downsizing. 
Age Partnership+ advisers can also see if those with existing equity release deals can save money by switching. 
You can compare equity release rates and work out how much you could potentially borrow with This is Money’s and Age Partnership+’s new equity release comparison tool.
‘For the same interest rate, we were able to clear a £8,000 loan we pay £225 per month for, and create a bank of money we can use for holidays over the next few years… although this fund may soon be depleted by our increasing costs,’ said James.
Equity release, also known as a lifetime mortgage, is when homeowners over the age of 55 take a loan of up to 60 per cent of the value of their property. This must then be repaid, with interest, when they die or go into long-term care.  However, some products do now allow the interest on the loan or the loan itself to be repaid annually throughout the term.  
The pair aren’t alone in using equity release to top up their day-to-day finances.
The number of new plans agreed in the second quarter of this year increased 26 per cent year-on-year when compared with the subdued market of Q2 2021, when pandemic restrictions remained in place. 
Insurance company Canada Life has found that in the first half of 2022, 19.6 per cent of equity release plans taken out with the primary purpose of covering day-to-day living costs, up from 18.2 per cent in 2019.
The figure fell to 10.5 per cent and 8.6 per cent in 2020 and 2021, respectively, due to reduced living costs during the pandemic.
Stuart Powell, managing director of Ocean Equity Release, who advised James and Lucy, said: ‘I predict that with the cost of living crisis set to worsen, this will be the trend in the rest of 2022, into 2023 and beyond.
‘If 11million people are able to access £811billion of wealth in their property for their own needs, as well as support their families, then Equity Release will have completed its move from, ‘the option of last resort’ to the ‘main choice for families’.
Equity release has been around for 20 years, but when it was first launched borrowers didn’t wholly understand the product and it was not fully regulated by the Financial Conduct Authority until 2016, Powell says.
This saw some borrowers pay very large sums in interest, sometimes more than the value of their home. 
Big decision: Anyone looking to release equity from their home should seek out a financial adviser who can run through their options with them
The product has only recently had something of a renaissance in recent years as it has become more flexible. 
At one time debt and accrued interest could only be paid off with the sale of the property, whereas now borrowers can pay off some of the balance incrementally on some plans. 
Equity release companies are also now more likely to encourage borrowers to include their families in the discussions when considering taking out a product.
There are also more options for managing your money. Borrowers can avoid the costs of a lump sum by releasing money from their property, but keeping some aside to be drawn when needed – the benefit being interest is only paid on the money that is fully withdrawn.
For example you may release £40,000 but only take £10,000 for now, leaving £30,000 for future use. Until you withdraw any more you only pay interest on the £10,000 you have fully taken.
There are also easily understandable fixed early repayment charges and you can work out your long-term costs.
But equity release isn’t necessarily the panacea to the cost of living crisis. Alice Watson of Canada Life says that equity release products will be far down the list of options a financial adviser will give older homeowners when looking for alternative sources of cash.
They will take a look at any investments, savings accounts or other assets, and assess whether the customer could downsize their property or rent a room for example. The objective is to make sure all other options have been exhausted before turning to a lifetime mortgage product.
Matthew Ellis, head of equity release advisory firm OneFamily Advice, said: ‘As a responsible equity release adviser, we would urge caution in using equity release as a means to cover shortfalls caused by the cost-of-living crisis.
‘Equity release isn’t the right route for everyone, and we would always recommend you speak to a specialist adviser to discuss all options available to you to be sure that it’s the best way forward for your circumstances.’
It is also important to remember that an equity release mortgage will probably be with you until the end of your life – a period that could far outlast current cost of living pressures. 
‘They do what they say on the tin, says Will Hale, CEO of later life lender Key Group.
‘They are lifetime, long term products, so if you are using the products to meet the challenges of the cost of living crisis you need to weigh up the short term need with the longer term implication of the product and whether it is appropriate to use the product to satisfy short term pressures’
He says that in some circumstances it may be more suitable to look at other types of borrowing, or even consider debt relief options.
There is also a lot of emotional taboo around the product. Watson adds: ‘There is a feeling that taking on debt in retirement feels like you failed. But using property wealth can be an important part of a more holistic retirement plan.’
Careful consideration: A lifetime mortgage might help some older people cope with rising costs, but they could be left with the debt long after the current cost crunch is over
‘There is currently a broad spectrum of what people are using it for, it is good that people are thinking of their property but has to be sensible and right for them.’
However, if it does make sense then there are positives. The lifetime interest rate shields you from Bank of England decisions and changes in gilts. 
And, Ellis says, research from OneFamily shows over 5million over 50s are thinking of using require release to help younger family members get onto the property ladder.
‘This is where older family members can use equity release positively, as a way of passing on family wealth at a time when it’s most useful to their relatives,’ he says. 
‘It means they will get to see their loved ones using their inheritances and benefiting from wealth built up from a lifetime of hard work.’
Ultimately, homeowners should carefully consider whether equity release suits their individual circumstances.
‘Equity release and housing equity have really important roles to play in helping older people manage their way through what is a tricky situation with the cost of living increases,’ Ellis says. 
‘But it is not a silver bullet and everything comes with risk as well as benefits. It is so important that customers weigh up this in a measured way. Don’t make rash decisions.’
Age UK is urging older people to call its free national advice line on 0800 169 65 65.
Its staff will check you are receiving everything you are entitled to, including pension credit and attendance allowance.
Find out more here about pension credit, or call Age UK which will help you apply.
Age UK adds that energy providers have a duty to offer support if people are struggling with bills or debt, and you can ask about an affordable repayment plan.   
Read more here about dealing with soaring energy bills and here for energy saving tips.
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