With soaring inflation and pensions proving to be disappointing, an increasing number of retirees are looking to release equity from their properties as a means of bridging the gap between their actual income and their financial needs.
And the equity release market is becoming increasingly flexible, with more and more schemes allowing pensioners to draw down small sums of money from their property, as and when they need to.
This is more cost effective, as the homeowner only has to be pay interest on the amount drawn down, rather than on a large lump sum which might be more than the pensioner needs at the start of their retirement.
The mutual insurer, LV=, has recently launched a Flexible Lifetime Mortgage that allows homeowners to access funds, as and when they need to, together with a 15-year guarantee on the maximum loan amount that can be drawn down.
This means that whatever happens to interest rates and property prices, homeowners have the peace of mind of knowing that throughout this period they can access the total amount agreed at the outset.
The product comes at a time when research commissioned by LV= indicates that 6.5m people over the age of 50 admit they are more concerned than ever about their income in retirement.
On average they would need £20,400 a year in retirement, but believe they would have a real income of only £17,200 a year.
With the LV=’s plan, homeowners between the ages of 60 and 95 can draw down a minimum amount of £10,000 and subsequent additional withdrawals of at least £2,000, up to the maximum loan agreed at outset.
The rate of interest is 6.95 per cent, or 7.1 per cent APR, fixed for the lifetime of the loan.
As an example, a couple aged 70 and 75 years respectively, living in a property valued at £325,000 could take a starting loan of £15,000.
At the same time, they could agree a maximum loan giving them access to a further £30,000 which they could draw on any time.
The initial application fee of £695 includes the cost of two further property re-valuations throughout the lifetime of the loan.
The scheme also comes with an all-important ‘No Negative Equity Guarantee’ which means that both the customer and their beneficiaries will never have to pay back more than the value of their home on death or permanent entry into long term care.
Other insurers offering similar equity release drawdown products include Just Retirement and Prudential.
David Black, banking principal at Defaqto comments: “If house prices fall significantly, equity release providers will fear potential liabilities as a result of their no negative equity gurantees. But LV=’s guarantee that it will honour its initial drawdown offer for 15 years should give customers some reassurance.”
For more on equity release, see the Defaqto guide:
http://www.defaqto.com/consumer/mortgages/equity-release.aspxase
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