Equity Release Grange-over-Sands

Jenny Lowe assesses the current options for older investors who want to release equity from their homes.

People living from the income generated by their savings are finding that level of income to be under increasing pressure. Following successive interest rate cuts, the value of retirement investments has been eroded, quite dramatically in some cases.

For many, the solution could be to use the equity in their homes to supplement the missing income. For even with the recent falls in property values, many older investors will still have a considerable amount of value tied up in their houses.

Inflationary pressures
David Cooper, marketing and distribution director at Just Retirement, points out that ‘Simultaneous with loss of income, the newspapers report that food price inflation has risen to nine per cent for the 12 months to the end of February, despite significant falls in the general level of inflation.

‘Taken together, these two factors could significantly damage the standard of living of pensioners, who will now be seeking alternative methods to generate income from their assets. In many instances, they may be forced to spend capital, thus harming their ability to return to a normal level of income, even when interest rates eventually rise again.’

It is estimated that people over the age of 65 currently have £500 billion in unmortgaged equity tied up in their homes. Cooper feels that ‘Equity release may be able to restore income levels, either for those whose assets are already depleted or, when the time is right, for those who could be left with insufficient funds over a period of time.’

Greater longevity
Another, probably more welcome, problem facing those approaching retirement is the
fact that people are now living for longer. According to the Office for National Statistics (ONS), a man who turned 60 in 2006 is now expected to live for a further 21.1 years, while a woman of the same age is expected to live for a further 24.1 years.

Sharon Bratley, chartered financial planner at Fairinvestment.co.uk, points out, ‘The fact that life expectancy is increasing and the prospect of a longer retirement should be a cause for celebration, but many people will still worry about how they are going to afford to live during their retirement. Reduced income in retirement could mean that taking advantage of the equity built up in their property could become a real consideration for many.’

Over recent years, equity release has had a lot of bad press, often regarded as expensive and inflexible, but director general of trade body SHIP (Safe Home Income Plans) Andrea Rozario suggests that this view is out of date.

‘Equity release products offer increasing flexibility – there are now products that offer the security of fixed rates with little or no redemption penalties, and recently we have seen rates falling, in stark comparison with the mainstream mortgage market,’ she says.

‘This, coupled with safeguards offered by SHIP members and...

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