A combination of high stamp duty charges and a shortage of suitable, smaller homes is forcing more and more older people to borrow money rather than downsize, according to the latest data.
Stamp duty tax, which is payable when buying a new property, is perceived as too high a price to pay for moving by many pensioners, who are seeking other ways to remain in their often large and unsuitable homes.
The issue has led to the number of mortgages taken out by those over 60 soaring in recent years. According to the Equity Release Council, the number of people in their sixties, seventies and eighties applying for mortgages has doubled in the last two years alone.
Retirement borrowing levels reached a staggering £700 million in the three-month period leading up to June, which is an increase of 27% on the previous year.
Many of these pensioners are being forced to borrow more money once their original mortgages have finished, because they need to find ways to continue to maintain their often larger houses – and pay to live in them alone, once their children have left home. This is, of course, in addition to what is often a considerable reduction in income following retirement itself.
Stamp duty, which in Scotland is called Land and Buildings Transaction Tax, is paid at varying rates depending on the value of the property you are buying. For a house worth between £250,001 and £925,000, for instance, the duty payable is currently 5%. For a second home or buy-to-let property, the duty is higher, at 8%.
The problem has led to an increase in so-called under-occupied homes, where one or two pensioners are forced to remain in their large, often unsuitable, houses instead of moving to smaller, more adaptable accommodation.
According to experts, the number of under-occupied homes has increased from around five million in the 1990s to more than seven million today. Unless things change, this issue looks set to worsen in the coming years.
Retirement borrowing is, of course, only one way to solve the problem of finding funds in later years. Equity release, too, is becoming more popular with older people, as they discover a need for more cash following retirement.
As the name suggests, equity release is a means of releasing the cash – or equity – tied up in your property. If you are over 55 and meet equity release criteria, it can be an effective means of freeing up some of the money currently locked into your home. Therefore, if you have a main residence valued at least £70,000 in England, Wales or Scotland, you can release a percentage of the value of your property based on the age of the youngest homeowner
If you have paid your mortgage off, equity release can help you fund a variety of projects – a special holiday, a new car, home improvements or even just to pay the bills without worrying – while still remaining in your home.
Even if you still have an outstanding mortgage, as long as sufficient equity is available from the equity release provider to cover this & any surplus required, then equity release can become a viable lending solution.
There are usually no monthly fees to pay, as the cash borrowed, along with interest charged by the lender is paid off when you die or go into long-term care. At that point the house is usually sold, the equity release provider is settled & the remaining balance allocated in accordance with the deceased wishes.
Here at Equity Release Supermarket, we can provide details on the different equity release packages, and show you how you could use the funds to ease your worries. We provide independent equity release advice which is provided by qualified & FCA regulated advisers.