23rd May 2019
In our article “Releasing equity in your home” which we published in June 2018 we reported that in the first quarter of 2018 nearly £10million per day was drawn down in the form of equity release. One year on and the figures for the first quarter of 2019 show a year on year increase of 10% in people taking advantage of equity release schemes leading to an 8% increase in funds drawn down.
Commenting on the latest statistics the Chairman of the Equity Release Council, of which Thompson Jenner Financial Services equity release adviser Philip Dalley is a member, said “Today’s competitive market is helping thousands of homeowners to make flexible use of their property assets to tackle a host of financial challenges, not just on their own behalf but also on behalf of family members.”
In our earlier article we counselled that equity release schemes may not prove suitable for all and that it was therefore important to take the advice of a qualified financial adviser in order to understand the implications of any decision. One area which merits particular consideration is that of the way in which interest is charged on any equity release borrowing.
Let us say at the outset that equity release schemes come with a range of options including the ability to cover interest on an ongoing basis. And it may well be true to say that the way in which equity release interest rates have fallen over recent times has been one of the contributors to their rise in popularity. In 2012 borrowers would be looking at an interest rate of some 6% (lowest or starting rate) against a current rate which is nearer to 3.5% (lowest or starting rate). Rates can still be above 6% for some new borrowers; subject to factors such as loan to value percentages, the amount borrowed and so on.
For those who opt for a scheme which results in interest being rolled up until such time as the property is sold, this fall in interest rates may have been of particular interest. For example, borrow £10,000 at 6% and the money you owe will have doubled after 13 years; at 3.5% it will be roughly 21 years before you owe £10,000 in interest on top of the original debt.
Thompson Jenner Financial Services specialist equity release adviser Philip Dalley highlighted “This reduction in equity release rates has implications for inheritance tax with inheritors benefitting from a proportionately higher residual property value. And with a fixed rate equity release mortgage borrowers won’t need to be concerned should interest rates rise in the future.” Nevertheless he also highlighted the importance of taking full financial advice as equity release mortgages could also impact other areas including entitlement to means tested benefits.
If you would like to find out more about Equity Release, or meet to discuss any of the the financial services which we are able to provide, please contact Philip Dalley at either our Exeter or Exmouth office on 01392 258553 or 01395 279521 to arrange a free initial meeting. Philip holds the Advanced Mortgage Qualification and is a member of the Society of Mortgage Professionals.
