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How Equity Release Schemes Can Help Generate Extra Income in Retirement

Monday, March 10th, 2014

How equity release can provide extra income in retirementThroughout our working lives, retirement always seemed a distant destination. Plans to ensure that financial security is bestowed upon us are often postponed, while more pressing needs are fulfilled. Yes, the date to start a pension or retirement planning was always the proverbial ‘tomorrow’.


Unless you were fortunate enough to become a member of an employer’s final salary scheme, which even today are becoming a rarity, then it’s likely that the penny has dropped and there will ultimately be a reduction in income, once state pension age is reached.


However, all is not lost & although many people haven’t necessarily funded a pension or savings contract for their retirement, they may have inadvertently been savings via their biggest asset…their property!


Should any of these comments strike a chord, then please read on. Using my wealth of financial services & the last 14 equity release experience, I want to explain how your property can become your pension & take you down the road of enhancing your pension in retirement.


The inevitable expense of retirement…

First let’s start by establishing what the perception of retirement is & the future expenditures that maybe incurred during its reign.

These could encompass simple lifestyle costs such as any of the following: –


  • A new car?
  • Regular holidays?
  • Home improvements?
  • A caravan or motorhome?
  • More leisure time for golf or bowls?
  • Enjoy days out?


However, for many the reality of meeting these expenditures becomes a pipe dream as once retired, they could find their income severely reduced. In fact in some cases, pensioners have seen a reduction of two thirds of the income that they enjoyed whilst working. The danger of this becomes apparent. From experience many retirees DO NOT curb spending habits to realign their expenditures following a reduction in income.


This situation has led to a dramatic increase in post-retirement debt counselling, with many building significant credit card debt, which then spirals out of control. During times of employment debt can usually be easier to manage, with the ability to repay using extra hours, bonuses, overtime or even a 2nd job. These options are somewhat reduced for the silver surfer generation, albeit more retirees are considering working, & actually are filling vacancies that once were not considered unnecessary in retirement.


So what are the options, should the over 55’s find themselves with an income shortfall & need advice on their retirement solutions?


Well as stated earlier, your home may have become an extremely valuable asset with potential escalation its value over the decades. So let’s look at how your house could become your pension and provide a level of financial security.


Home equity plans have been around many years, but have never been as popular as they are today, so here I attempt to explain the pros and cons of equity release schemes.


Why do people take out an equity release plan?

More and more people are turning to equity release to fund home improvements, pay off debts and to enjoy holidays, but the underlying reason for this is that their income has reduced so much since they retired, they’re no longer able to save for larger purchases.


Similarly, many retirees are spending their tax free cash from their pensions on larger purchases, such as a new car and conservatory, but are finding that their disposable income has reduced to the extent that there’s hardly anything left each month having paid their household bills and bought their groceries etc.


We’ve all seen in the news that pensions aren’t producing the expected level of income that people hoped for: some final salary pension schemes have closed; annuity rates are historically lower as life expectancy improves; interest rates on savings have flat lined since the economic downturn, with even the highest instant access cash ISA rate only offers 3.02% variable (Newcastle Building Society).


Explore potential sources of additional income

Assuming that you’ve spent your lifetime savings, don’t wish to move or downsize yet, and have exhausted all other alternatives upon discussion with an equity release specialist like Equity Release Supermarket, there’s a number of other alternatives for you to consider:


  • The first step should be to check if additional income could be sourced from elsewhere such as local government? Always check whether any means tested state benefits or such as pension credit, or local authority benefits now labelled ‘Council Tax Reduction’ may be available. Please see my recent article on this – ‘Can an Equity Release Adviser Provide Advice on Means Tested State Benefits?


  • Finally, if you’ve got any existing debts, these could be refinanced & consolidated, potentially leaving you with one lower monthly payment.  These savings can then be used towards providing extra income in retirement.


What’s the best way to get an income from equity release?

No current lifetime mortgage providers actually offer a monthly income equity release plan. In fact only one provider ever has; Northern Rock offered an income producing lifetime mortgage. This was pulled once Northern Rock Equity Release (now Papilio UK) was closed to new business during the credit crunch. Even during its lifetime, the Northern Rock Cash-Plus plans were fairly inflexible in the sense that once income was arranged, it was fixed for life and could not be amended.


Nowadays, the majority of equity release applicants would rather have the flexibility of deciding when the take the tax-free cash, not to be dictated to with a fixed income for life. The most prudent & popular way is to use a drawdown equity release scheme. This is available from most lifetime mortgage providers and I can carefully assess which scheme is most suitable for you. By accepting a cash reserve facility from the equity release company, the applicant can then decide how much of this reserve facility they need to spend initially. The remaining balance untaken, is then held by the lender until such time the customer requires further cash drawdown. The beauty of the drawdown lifetime mortgage is that NO interest is charged whilst monies are left with the provider.


Let’s look at a couple that I met recently and witness how a drawdown equity release scheme works in practice:-


Case Study – ‘asset rich, income poor’

Jim & Mary, both aged 70, own a property worth £250,000 and are both retired. They manage reasonably well from their pension income, but this only pays for their normal day to living expenditure and they’re unable to afford the small luxuries in retirement that they’d always dreamed of. They’d like an extra income each year to pay for regular meals out, a cruise each year plus they like exploring National Trust type properties and country villages.


The solution: They’re able to release the minimum loan of £15,000 which will easily cover their first 2 years of expenditure as they also need to use £5,000 for a new bathroom.  In order to supplement their on-going income needs they’d like £4,000 ‘spending money’ each year. With the versatility of the Hodge Flexible Lifetime Mortgage Plan, they’re able to achieve this as Hodge would set up a reserve of £55,000 that can be accessed at any time, with a minimum withdrawal amount of £1,000. These extra withdrawals attract NO further charges.

Jim described this as ‘like having a bank account with £55,000 in it.’ The benefits to Jim & Mary are that none of this £55,000 reserve facility attracts any interest until it’s actually taken. They plan to withdraw around £4,000 a year for approx. 10 years, whilst they’re fit and healthy to enjoy it. The Hodge Lifetime Flexible Mortgage Plan comes with a free valuation offer currently.



When equity release should NOT be used to create an income!

Some equity release customers in the past have been advised to release the maximum lump sum from their property and reinvest into an investment product. Problems have arisen, as the income has reduced and the investment has often dropped in value, while interest on the equity release has rolled up and provided poor value for money.


Similarly, some customers previously released a lump sum to buy an annuity but it has proved difficult to get a good income from a relatively small lump sum. It normally takes considerable time to benefit from a pension annuity, but interest will have been charged on the full amount of equity that you originally released from your home.


Other customers have taken the maximum lump sum from their home and invested into deposit accounts or investment bonds, but have been dismayed with plummeting interest rates. With interest rates on equity release loans currently averaging over 6%, yet the best savings rates currently only 3%, this obviously represents poor value for money & certainly not best advice.


These are NOT ways that equity release mortgages should be utilised and why the drawdown lifetime mortgage scheme is the correct vehicle to use.


What are the main advantages of a drawdown scheme versus a maximum lump sum plan? 

  • Interest isn’t charged on the reserve amount, until you decide to take it
  • You can withdraw money from the reserve at any time
  • No further charges for each withdrawal made (except New Life & more2life)
  • Limiting your savings in the bank, can help eligibility for means tested benefits
  • The less money you borrow, the less interest your beneficiaries will need to repay when the plan ends


How much can I release under a Drawdown equity release scheme?

The amount depends on a number of factors, including property value, age of the youngest applicant and property type. With recent innovations in equity release schemes there is now an enhanced drawdown lifetime mortgage plan which can offer a greater cash reserve facility for those with a history of poor health, yet requiring the maximum cash facility available.


Equity Release Supermarket’s free equity release calculator found here our website can certainly assist in helping to ascertain the maximum equity release possible. This will provide a guideline which can then be qualified further by myself dependent upon your financial requirements, both now & in the future.


Therefore, please contact myself, Mark Rumney for your personalised illustration. Your request can be discussed over the telephone & once I have identified your requirements & checked eligibility. Following that, I can conveniently post or email out the best recommended scheme for your needs.


To follow up any aspects of this article, please contact me via my mobile 07957 974826 or email markrumney@equityreleasesupermarket.co.uk


On Why Finding A Good Equity Release Consultant Is A Must

Wednesday, June 22nd, 2011

The amount of equity you own is the term used to describe the value of a home less any mortgage or secured pending on it. Equity release allows you to free up this money tied up within your home.


The equity release process will allow you to receive a tax free, lump sum of capital allowing you to spend it in whatever way that you choose.


An obvious disadvantage is that you will not be able to hand down all of your property to your offspring. Nevertheless, you do get to live out the remainder of your life in your home, rent free or till you move into elderly care.


If you are considering an equity release scheme, the best way to get started would be to approach an expert. Some organisations which provide equity release schemes also provide a free consultation, so remember to take advantage of their services. Some research of the advisor would be of benefit as they must be regulated by the FSA (Financial Services Authority) & have an individual registration number with them. The equity release adviser should therefore be found on the FSA website register.


Ensure they are independent, which means they are free to deal with ANY equity release provider in the market. So ask. Some companies purport to be whole of market, however upon closer analysis they only deal with a handful of companies. You may therefore be missing out on a beneficial feature of an equity release scheme that they do not have available. This could save you £1000’s in the long run & could prove costly if the wrong equity release plan was chosen.


Your advisor will let you in on all the vital details regarding the procedure. This will be after the equity release adviser has collated all the necessary facts regarding one’s current situation. Guarded with this information, & any soft facts provided such as ‘how important is that you leave part or all of your property to your beneficiaries?’  will be asked. Also income & whether you are in receipt of means tested benefits is important as this will reflect on which equity release schemes are advised upon. The equity release consultant can then document & record this stage of the lifetime mortgage process.
Once an accurate financial picture has been ascertained & observed the clients objectives, the equity release adviser can then discuss the mortgage options available. These would include an explanation of the various schemes available to suit. Included in this would be roll-up equity release schemes, home reversion plans & interest only lifetime mortgages such as the Halifax Retirement Home Plan or the Stonehaven Interest Select.


You do not have to give them an instant decision; after all, going for an equity release scheme is a big decision and something which should not be rushed into.

Upon presentation of the equity release advisers recommendations a Key Facts Illustration must be offered to you. This would include a summary of the scheme in principle, costs & charges, future balance & the commission payable by the lifetime mortgage providers. This is quite a comprehensive overview of the scheme & covers the finer details, as well as the main features, such as the no negative equity guarantee & early repayment charges etc.


Once you have made your decision, all you have to do is simply call your advisor and give them the go ahead. They will have all your paperwork taken care of, contact your solicitor and keep you updated about everything, right to the time that you get your money released.


A professional & courteous adviser will confirm the funds have been released & offer any after care service in the future; for example when additional funds are required such as on a drawdown equity release scheme.


As a company Equity Release Supermarket keep contact with its clients to advise on new products & interest rates in the future as it is important to keep abreast of the market as & when more competitive products become available.


Independent & award winning equity release specialist Equity Release Supermarket offer all the above benefits & quality of service that the testimonials at the bottom of the home page illustrate.


To discuss your options in the release of equity from your property call freephone 0800 678 5159 today or alternatively complete our contact form & one of our advisers will be in touch


Equity Release Schemes – Live Your Life The Way You Want

Thursday, July 29th, 2010

Gone are the days when you needed to sell your property to unlock the equity in it.

Equity release schemes now give you an opportunity to stay in your home while you can still financially benefit from it. You can utilise the value of your home as a means to receive cash. This can be in one lump sum payment, lump sum & drawdown payments or in the form of regular monthly installments.


This new income source can be used in many different ways and is becoming quite popular among people of retirement age. The increasing costs of everyday living expenses puts financial pressure on particularly the retired population.

A lack of finance in retirement can to prevent us from living comfortably on a daily basis. This is when equity release schemes can fulfil their potential in offering homeowners the perfect option to enhance their lifestyles & enjoy life.

You may want to carry out home improvements, lighten some of your financial burden or just spend some more time fulfilling leisure pursuits such as holiday breaks or even worldwide cruises. Equity release schemes enable you to live out all your dreams. The money you get from the equity release scheme can be spent in the way you want. Obviously, this is where independent equity release advice is important.


People often want to release the maximum possible from an equity release scheme & invest the proceeds. However this invariably is not the best option.

With the lowest equity release interest rates around 6.5%, by taking a large release from the property in the current econmic climate, it would be impossible (unless excessive risk was taken) that one could obtain the same 6.5% return.

Therefore, it is not good advice to take a large tax free lump sum from an equity release scheme just for investment purposes.


A more cost effective way of achieving this goal of increasing your income could be by a drawdown equity release scheme. This scheme would enable an overall cash facility to be provided by the lender. From this facility, an initial tax free lump sum can be withdrawn, leaving the unused facility with the equity release lender that can be drawdown over future years.

The advantage of this method is that interest is only charged on the money withdrawn; not on the remaining funds in reserve. Interest is only charged on this as & when additional funds are taken.

This reserve facility is therefore the solution to providing the income required. The funds can be withdrawn as ad hoc payments in minimum amounts of between £2000-£5000 depending on the equity release lender.

Therefore, depending on the annual income required, this amount can be withdrawn from the equity release drawdown facility meeting the income objective.



Considerations while opting for equity release scheme

While planning to opt for an equity release loan, there are few important things you need to consider. The lender, via the legal process will first check that all your mortgage & secured loan balances are completely repaid. They will also check whether you are the owner of the property by checking the land registry records.

Moreover, a valuation of your property will also be conducted by an independent local surveyor. Your age is also a determining factor on how much equity you can obtain.


If you want to live a stress free life after retirement, choosing an equity release scheme can be  an excellent solution.


Contact Mark on 0800 678 5159 to discuss your income options further or visit Equity Release Supermarket


Get Tax-Free Money Against Your Home Using An Equity Release Scheme

Sunday, July 25th, 2010

Equity release schemes are especially designed for older homeowners. These schemes offer a lump sum amount of money or a regular income against the value of your home. One of the best things about these schemes is that they allow you to live in your home for the rest of your life.

Another important feature about equity release schemes is that they offer a tax-free amount of money by unlocking the equity in your home. This means that you can spend the cash in any way you want without an income tax liability.



How much money you can release against your home?

The lump sum amount of money varies from a minimum release of £10,000. The maximum release is determined by two factors: –

  • Age of the youngest homeowner
  • Valuation & type of property

If you want to know how much can you release as you can see the important factors are your age, house value and outstanding debt. Nowadays, most people use an online equity release calculator to know the amount they can release.

Click here to calculate your maximum release.



Nevertheless, it is not always advisable to apply & release the maximum equity release possible.

In every equity release case, advice must be provided by a qualified equity release adviser such as Equity Release Supermarket. The reason for this is that equity release schemes are regulated by the Financial Services Authority & most lenders who offer such schemes are also members of SHIP (Safe Home Income Plans). These levels of protection are essential in guaranteeing quality advice to people over 55 years of age.


Equity Release Supermarket advisers would only recommend you take an initial amount that would be required initially for the first 12 months from application. This is to reduce the impact of the roll-up effect of the equity release scheme over the longer term. By taking the maximum release from outset & having no plans for its expenditure would only leave the excess funds languishing in a savings account. With today’s interest rates this would not be financially savvy as the rate on the equity release scheme would be 3%+ higher than that of the savings account!

A more cost effective way of releasing equity in these circumstances would be by a drawdown equity release scheme. Here a cash reserve facility is provided by the lender. From this, you can take an initial release depending on your first 12 months expenditures. The remaining reserve funds can then be withdrawn as & when demand is required.

By taking this equity release route would mean that less interest is paid as you are drawing down a smaller amount & then ad hoc smaller payments over the years.

This is much better financially for beneficiaries also as there is also potentially a lower balance thus resulting in a greater inheritance for them in the future.



If you have decided to opt for an equity release scheme, you must consult an advisor who will help you fill in the documents. There are some factors which need to be considered before releasing the cash against the property.

These include:

  • The homeowner must be over 55 years of age
  • There should be little or no outstanding mortgage
  • The property should be worth at least £70,000

Subject to this criteria being met then the next stages of the application process can be achieved & your equity release adviser will explain the forthcoming stages to complete the whole process.



If you need assistance with equity release calculations, please contact Mark on 0800 678 5159 or visit the Equity Release Supermarket website by clicking here


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