Having been advising on equity release for 15 years, I’ve met hundreds of people who’ve released money from their home to spend how they so wish. Most tend to spend their funds on similar things: such as
- Paying off mortgage / debts
- Helping family
- Home improvements
• Paying off mortgage / debts
• Helping family
• Home improvements
These reasons are consistent across the industry. However, although the reasons are common, many of the specific reasons vary. Let’s look at some of the specific, and sometimes unusual ways that my clients have spent the released equity:
Paying off mortgage / debts
Many homeowners are being left with mortgages in retirement and/or unsecured debts, such as a credit cards or loans which many are finding increasingly difficult to service. These monthly debt repayments can often take a huge chunk out of your retirement income and leave little at the end of the month for enjoyment, or to even cover basic household bills. Equity Release can be used as an alternative to these debts and offer an affordable solution: let’s look at a case study:
Philip had just retired but still had a mortgage, a car loan and a credit card balance. His total debts were £50,000, which was costing him £1,300 per month in repayments, and this was proving to be unaffordable. He wanted to repay his debts and reduce the monthly repayments, so I recommended that he effected an equity release plan with Legal & General. He borrowed £50,000 to repay his debts and wanted the option of making an annual voluntary interest payment to service the equity release interest. The equivalent monthly amount with Legal & General is £262.50, compared to the £1,300 that he was paying towards his debts. If he pays enough voluntary interest each year he can keep the equity release balance the same as the initial loan and make a huge monthly saving. He’s happy to pay this for the rest of his life as it will be easily affordable.
We all know that items such as boilers, electrics and carpets need replacing over time, due to wear and tear. Other items such as kitchens and furniture can date and many people are using equity release to fund these too. As some of my clients have got older they’ve often used the money to add a walk in shower, or to fund help in the garden. Some of the more unusual uses of equity release has been to turn the garage into a snooker room!
• Helping their children get on the property ladder
• Paying for private school fees for grand-children
• Clearing debt built up by children: after a divorce for example
Edward & Joan have 1 daughter, Sophie, who is in the process of buying her first flat. Sophie has saved regularly and built up a 15% deposit. Edward & Joan wanted their home to help with Sophie her home. So, they released money from their home to gift her enough to have a 30% deposit. This had 2 positive effects: firstly, as Sophie didn’t need to borrow as much from her mortgage lender, her monthly mortgage payment is lower each month. Secondly, as she using a 30% deposit, rather than 15%, she was able to obtain a lower interest rate from her mortgage lender! A double saving! Edward & Joan effected a plan with Hodge Lifetime to service the interest on the equity release scheme.
Many clients use equity release for holidays both abroad and in the UK, or for a caravan, or even a holiday home. Some unusual locations for holiday homes have been in Australia and the Western Isles in Scotland.
Michael and Janet enjoy watching sport and wanted to raise £50,000 to pay for trips to watch The Ashes in Australia, the Ryder Cup in the USA and other sporting events around the world during the next 10 years. However, rather than release £50,000 up front, I recommended a plan from LV where they could release an initial minimum loan of £10,000 and leave £40,000 on reserve that they can ‘drawdown’ when needed. By using the reserve facility they won’t be charged interest until they actually withdraw further funds. Moreover, the liked the idea of the reserve being guaranteed for 15 years and I therefore recommended LV as they are the only company to offer this guarantee.
But what else do equity release customers spend their money on? My client’s often ask can we spend it on whatever we like? The short answer is YES, although careful advice and planning is needed. Let’s look at a case study:
Unusual usages of equity release include:
• Paying off a buy to let mortgage
• Training costs to get a pilot’s license
• Private operations
• Purchase a light aeroplane
• Buy a more expensive property: ‘upside’ rather than ‘downsize’
So, what shouldn’t you spend the money on?
It’s generally not recommended that you release equity to invest into stocks and shares, for example, as the interest charged on the equity release plan is likely to be higher than the return received from equity investments. Indeed, one recent client wanted to use the equity in his home to buy shares which produced an income. He wanted to invest £100,000 into stocks and shares. After our meeting we agreed that using an equity release drawdown facility was much more sensible as the roll up of interest would me much less if he drew £5,000 a year from his home, rather than a one off lump sum of £100,000. He started a Pure Retirement Max Drawdown plan and intends to release money when needed for his income needs.
For help and guidance regarding equity release please contact me on 07957 974826 or email firstname.lastname@example.org