The truth is out there
Misplaced fears about equity release mean that pensioners and their families could miss out, when in fact it might be an ideal solution . . .
Equity Release’s public image has long had a rocky ride in the United Kingdom that seems a little unfair. It has always been held that the average citizen of this green and pleasant land will be born, attend school then move into further education. With this instilled knowledge and wisdom he or she will obtain dutiful employment and use the remuneration of the daily toll to buy somewhere to live.
Armed with this financial security, the good British citizen will then have the means to find a mate, produce offspring and eventually retire on a comfortable pension, spending the rest of their days interfering with the daily life of their children and writing strongly worded missives to the local press regarding dog fouling and the music to which people listen to these days.
With this idyll in mind, equity release would be anathema. There would be no need to place another mortgage on the family home after the original one, used to buy the house in the first place, had been paid off. This has been the attitude of the media since the inception of equity release, and to some extent it continues to this day.
Unfortunately though, the perfect life does not always exist and the demographic that still does enjoy this life pattern is shrinking by the year. Home ownership is at its lowest level for over 25 years and looks likely to shrink further as increasing house prices and higher affordability criteria squeeze more and more people out of the mortgage market.
Taking this on board, equity release seems an ideal solution to help children and grandchildren onto the property ladder, when they might otherwise have needed to wait until they were well into their thirties to have saved a sufficient deposit in order to obtain a mortgage. The grandchildren in some cases take on the responsibility of paying off the interest on the lifetime mortgage. Now, with lifetime mortgages allowing capital repayment they can even repay the capital. This is the modern equivalent of obtaining a 100 per cent mortgage, but with some of the risk of defaulting placed on a family member.
These types of solutions are only available to those who aren’t frightened away from the equity release sector by media scare stories that usually only tangentially touch upon modern equity release. A notorious Tonight with Trevor McDonald episode in 2007 featured an expose on sale and rent schemes and shared appreciation mortgages. Neither of these products fits under the umbrella of UK-regulated equity release products but that didn’t stop the programme makers labelling everything as equity release.
More recently, a Which? Report branded equity release as a “rip-off”, as rates start at around 5 per cent, whereas fixed-rate, high-street purchase mortgages can be obtained at around 4 per cent. No mention is made of the fact that a client can lose their home with a high-street mortgage but not with a lifetime mortgage. No mention is made of the different funding models that allow lifetime mortgages to exist at all. It is not surprising that when Aviva surveyed 1,200 homeowners aged 55 and over, 82 per cent thought they had a good understanding of equity release, yet 27 per cent still thought it involved selling their home and another 21 per cent thought that their home would be at risk.
Until the general media can report in a properly researched and unbiased way on financial products that they don’t fully understand, these attitudes are likely to remain.
To find out more about equity release, contact the equity release information centre for a free guide on 0800 077 6885. Or visit our website at www.AskERIC.tv
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
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