Thousands of homeowners are releasing cash from their homes to fund their retirement or even side-step inheritance tax, new figures reveal.
A record £1.4billion was loaned through ‘equity release’ mortgages last year — almost £4million a day — with growing numbers using their property as cash machines to meet a shortfall in their pension income or to give money to children and grandchildren.
Others are blowing their property wealth on everything from home improvements to holidays. Experts said some homeowners wanted to unlock the money in their house and enjoy it before it could be swallowed up in care home fees in later life.
With the average care home costing £2,400 a month, the capital in many people’s homes is later eroded to meet care home fees.
According to the Equity Release Council, 21,000 people released money from their homes last year — the greatest number since 2008. These lifetime mortgages are then repaid when the borrower dies or moves into a care home, along with interest accrued on the loan.
The equity release market grew by nearly a third between 2013 and 2014, as people used it as a way to get money without having to downsize or move house. Finance experts say the trend will continue as the post-baby boomer generation find they have insufficient funds in retirement to support their lifestyle.
Steve Wilkie, of specialist firm Responsible Equity Release, says: ‘We are seeing more retirees than ever using the equity in their homes not just to supplement their retirement income but to provide lump sums to pay off mortgages and clear debts.
‘With low interest rates continuing to hurt elderly savers, equity release is offering a solution to fill that savings hole.
‘Our figures show that homeowners are not just thinking of themselves. We are seeing a real desire from older homeowners to help the whole family out.
Early inheritance is a strong driver at the moment for taking out equity release plans — helping out younger family members now, when the money is needed, rather than waiting 20 years.’
But there are warnings these loans could double in ten years as high interest rates are rolled up, threatening to erode any savings on inheritance tax.
Stuart Phillips, of advisers The Private Office, says equity release is an ‘attractive’ way to obtain quick cash, but could prove to be a ‘pretty expensive’ option.
He says: ‘At 5 per cent interest a year, the loan will double every ten years.’
He adds that many local authorities had become ‘wise’ to people cashing in their property wealth early in order to avoid it being drained for care home bills in the future.
Sam: 23rd Jan 2015 14:29:00
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