By using your house equity release can alleviate many retirement issues. One of the main reasons for people looking towards equity release as a financial tool is using its functionality & flexibility in moving home.
Investing in new property
There are two ways here that these lifetime mortgage schemes can help gains in the housing market. These loans can financially assist with either a choice of obtaining additional residencies or even with moving to a more expensive property.
Firstly, & an area that is becoming increasing popular in retirement is moving to a suitable retirement property. This could be for disability reasons, as a ground floor flat or apartment is required due to difficulties with mobility. An upper floor, or even 2nd floor properties in a high rise blocks can create issues later in life.
More commonly people are looking to purchase bungalows for the same access reasons. Bungalows are sought after retirement homes due to their lower maintenance & running costs. However, the downside is they tend to be more expensive than its detached counterparts. Affordability, both in equity terms & monthly payments is therefore something of a regular issue in both these scenarios.
So how can equity release work in principle for someone buying a more expensive house?
The principle for a lifetime mortgage, works exactly as the same principle for any conventional mortgage –You have equity; you have a potential purchase price; now you need to bridge the monetary shortfall.
Lifetime mortgage & home reversion plans can help by applying to release equity on the property you intend to buy & having the benefit of no monthly payments.
For instance we have the following scenario: -
A 65 year old, currently has £150,000 net equity from the sale of her last property & now wishes to purchase a bungalow for £200,000. Being on limited income, a mortgage is unaffordable & therefore unobtainable. How can equity release help?
Based on her age & the purchase price of the new house, she would be able to raise upto £58,000 on SHIP regulated lifetime mortgage deals. Upon deciding the most suitable loan, an application would then be made on the property she intends to buy & upon which a mortgage valuation would then be concluded. The valuation would establish suitability from the lenders viewpoint that the property is valued correctly & mortgagable. With acceptance, the lifetime mortgage providers would then issue an offer document outlining the statutory obligations of both parties & upon which the conveyancer would base the legal attributes.
Once the mortgage deed & the lenders legal requirement have been signed, the £50,000 funds can be released by the lender & combined with the £150,000 equity she had available, would enable her to meet the £200,000 purchase price. The property is now her home for the rest of her life & no monthly payments to meet.
How else can lifetime mortgage providers help in the housing market?
There are possible umpteen situations where they can help. Experience has shown though that there are two other areas where equity release schemes are more prominent. One is primarily when retirees need to move nearer to their children & the location is more expensive then they will need additional funds. The example above solves this problem.
If someone wishes to build a property portfolio then they take equity from their main residence via an equity release mortgage & use this tax free cash as a deposit on a buy-to-let property. This could also be an excellent way of increasing retirement income & potentially use equity to increase capital gains for the overall estate. A more lifestyle changing attribute of equity release schemes could be the purchase of a 2nd property; be it a property abroad or a holiday cottage in a seaside location in the UK. The choices can be limitless, but the overall result is the same; more options & better standard of living in retirement