We tend to dismiss regrets, but many people make a habit of wondering about the impact of decisions they took decades ago and how, had they panned out a little differently, life itself could have taken an alternative path.
Sometimes, however, we catch the right bus which, though slowly, eventually delivers us to where we want to be, so contradicting the words of eighteenth century French writer, poet, philosopher and historian, François-Marie Arouet, known as Voltaire.
Indeed, I would venture that even Voltaire would struggle to add his overtly negative, ‘crime and misfortune’ spin to some situations, particularly if we could invite him to reflect on how the majority of baby boomers have benefited – and can continue to benefit – from the almost relentless rise in property values over the past half century.
I was reminded of this recently after spending a long weekend with friends in Bristol, a city in which we lived for more than 15 years after working overseas for several years. We returned to the UK in the mid-1980s and bought a small, two-bed flat in Bristol. Neither of us are from Bristol, but we both love the city and appreciated its attractions long before it became one of the UK’s most desirable places to live.
It was the subsequent arrival of our new baby daughter and the accompanying accumulation of essentials such as pushchair, disposable nappies, baby bath and mountains of additional infant paraphernalia which convinced us that we must find larger, family-friendly accommodation.
We sold the flat for £23,000 and used the cash proceeds as a deposit to buy a run-down (that’s an understatement) four-bed detached house for £38,750, doubling the size of our mortgage to £30,000. I vividly recall wondering at the time if we were doing the right thing, taking on so much debt; no-one in either of our families had ever had such a massive mortgage. It was, for us, a significant risk and we prayed that interest rates wouldn’t prove too volatile. They did, but that’s another story.
Since our initial property investment , we’ve gradually moved up (and occasionally sideways) on the property ladder, spending money on refurbishing and renewing, while simultaneously eating into larger mortgages until they too had disappeared completely (we threw a party after that happened).
I imagine the first large-ish house we bought would today command an asking price of around £400,000. Again, we spent money improving the place and no doubt later owners put their stamp on the house too, but had we stayed in the house for the 30-odd years since we bought it, we would have paid off the mortgage and enjoyed capital appreciation in the region of £13,000 a year for an initial cash investment of £8,750, more than £6,000 of which was appreciation on the original two-bed flat.
This represents a 45-fold ‘return on investment’, a staggering example of growth in ‘bricks-and-mortar’ wealth.
Many people reading this will no doubt have enjoyed comparable, or a much better return. Others will have sunk large sums of money into their homes to make them bigger, more attractive or more comfortable; the rate at which their homes have appreciated is likely to have outstripped the 45-fold increase referred to above.
Let’s face it, those of us who bought our homes in the 1980s have been incredibly lucky. Now, as our grey hairs gradually extend beyond the temples and joints groan when we bend down to get the milk from the fridge, millions of homeowners in a similar position ask, ‘how do we access this often colossal wealth and what are the conditions for so doing?’
The question is particularly apposite as pensions are threatened from all angles and politicians appear increasingly desperate to grab a percentage of boomers’ wealth. Given this backdrop, it’s worth noting that over the past decade, equity release has become an integral part of Britain’s financial services industry, operating within a tightly-regulated environment.
The most popular method of releasing a percentage of the wealth built up in your property is by taking out a lifetime mortgage, a product which comes with two particular features worthy of note. First, there are no legal requirements to make monthly payments; second, owners retain 100% ownership of their home. Moreover, as the equity release market has developed, so the range and flexibility of lifetime mortgage plans has widened, in several cases enabling homeowners to draw a percentage of their home’s equity to supplement their income – mainly by way of drawdown payments which can be taken in a small amounts as £2000 a time.
On top of this, every penny of the released funds are tax-free and there are no restrictions on how you spend your cash pile. Not surprisingly, accessing a proportion of your property’s accumulated wealth may reduce the value of your estate and affect your entitlement to means-tested state benefits, points you may wish to discuss with an equity release adviser before progressing further.
How could you spend your tax-free funds? However you want, but if you apply a modicum of positive hindsight, you may prefer to help your children or other loved ones onto the property ladder. Considering how kind the property market has been to us boomers over the past 30-odd years, this will be many people’s preferred option.
