Homeowners have this year been forced to release equity from their homes in record numbers as the grim reality of a shortfall upon retirement hits home.
Equity release allows the homeowner to raise money without the need to sell their property, and there are two options available for this method of finance. Either borrow against the property value, or sell part or all of the property in order to get a monthly amount or a lump sum.
In the first quarter, this method of lending hit a record £315 million which is a frighteningly substantial amount for industry professionals to digest. The state of play is such that annuities are under-performing and savings plans are currently yielding low returns. This means that while on paper, many may appear to have significant assets, the reality is that they are facing significant shortfalls in terms of the necessary retirement income to allow for comfortable living.
No Negative Equity
Previously the idea of Equity Release on property was frowned upon by reputable financiers due to the bad reputation it gained from being mis-sold. Often the property value would not meet the repayment of the loan plus interest and family members would be left with large deficits to cover, however a guarantee of ‘no negative equity’ has been introduced giving homeowners the added peace of mind that while being far from ideal, they can take a lump sum from their property to ensure stability.
The question most will ask is why they have been forced into taking this measure. The current inability to be able to move their UK pension into a better performing scheme, as well as poor investment decisions taken by their providers are both partly responsible. However, with pension reforms on the horizon as the shortfall crisis edges ever nearer, time will prove whether the government has the answer to an ever growing number of pensioners who will see their quality of life in retirement decease dramatically.
About John Cassidy
