Three big questions have been dominating our headlines for some time now: how much longer are we living? When should we retire and how do we bridge the pension gap to afford what wed like, or often simply what we need?
Mark Neal, managing director of Economic Lifestyles, said: Although many pensioners are wealthy, much of this is only on paper because it is tied up in their homes. However, it is now becoming much easier for retired homeowners to improve their quality of life.
Not only are there more options available to equity rich pensioners who want to access the wealth locked up in their homes, but also the attitude of younger generations has changed. Pensioners now have their childrens blessing to enjoy their hard-earned cash.
According to figures released by the Council of Mortgage lenders, the number of new lifetime mortgages equity release loans to older home-owners increased in 2006, and further analysis reveals that the trend towards smaller loans grew more pronounced as the year wore on.
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A lifetime mortgages is a loan secured on your home, taken out to provide income for the rest of the owners life.
Interest payments on the loan are rolled up on top of the capital throughout the term of the loan. No repayments are made while you live in the property, but the loan is repaid from the proceeds of its sale when you die or move out.
You retain legal title to your home while living in it but will face hefty repayment fees if you later decide to pay off the lifetime mortgage. The Financial Services Authority (FSA) regulates lifetime schemes.
Ali Crossley, Pru UKs director of lifetime mortgages, said: “Property can form a great part of a retirement planning portfolio. It may be too late for people approaching retirement to build up a supplementary source of income using a pension, savings or investments. However the equity tied up in their homes could be instrumental in boosting their funds.
“There are many ways of releasing equity and different options will be suitable for different people. The market has seen a lot of innovation recently, and products can be much more flexible. This obviously makes them more attractive to consumers, as it allows them to minimise interest by borrowing what they need when they need it, rather than a single lump sum up front.
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How are you going to fund retirement?
Those in the 45-55 age group are most dependent on property to provide them with a sizeable proportion of their post-retirement income.
This appears to be clearly reflected in their intentions of using this property to fund part of their retirement, with one in 11 people in this age group expecting property to account for over 50 per cent of their retirement income.
Downsizing – moving to a smaller, cheaper home – is one solution for those approaching retirement, but that may mean leaving a cherished house, locality and friends.
Another option is to enter into an equity release deal, which has the benefit of allowing you to stay in the property.
According to Safe Homes Income Plans (Ship), which represents over 90 per cent of the equity release market, a record £1.2 billion worth of lifetime mortgages were sold in 2006 and this is expected to rise to £1.7 billion by the end of 2007.
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Equity release has, of course, had a chequered history. With huge interest rates charged in the past, some schemes hit the headlines with alleged mis-selling and many clients feeling ripped off. Things have changed now.
The Treasury is consulting with mortgage companies, banks and building societies about introducing new laws to safeguard clients, while the Financial Services Authority is recruiting new staff to police those schemes already under its control.
Ship Chief Executive, Jon King, believes that todays products are a far cry from the inflexible, poor value products of the past.
The equity release market has come a long way over the past decade and has made very real strides in its attempt to rid itself from the skepticism that surrounded it in the early years.
Equity release has never been cheaper, more accessible or with full regulation imminent in 2007.
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