With UK house prices rocketing, older homeowners might feel that their chances of affording their next home have dwindled dramatically.
The government’s Stamp Duty Land Tax (SDLT) holiday lit the touch paper under the already buoyant property market, leading prices in June to grow at their fastest pace in 17 years, according to the Nationwide house price index.
Elevated prices are ostensibly positive for homeowners, as properties can be sold for more than they were purchased.
But many over-55s are on low or fixed incomes or may find it difficult to get a mortgage from the residential mortgage market, making the leap to their next home seem unattainable.
For anyone facing this conundrum, equity release could provide a viable solution to obtain the home they desire.
Growing demand
Many equity release customers unlock the wealth tied up in their homes to help fund lifestyle improvements, to spend money on children and grandchildren, or to go on the trip of a lifetime.
However, increasing numbers of people are now using it to help buy the property which will meet their needs in the next stage of their lives.
Indeed, at more2life, we’ve seen the proportion of over-55s who have been using equity release to fund property purchases triple from 5% to 15% since the outbreak of the pandemic.
So how does equity release for purchase work? Essentially, a homebuyer can take out an equity release loan on the property they are purchasing to help boost their buying power and fund its purchase.
For those in or approaching retirement, this can be a particularly useful solution to purchasing their dream retirement home, which may well be smaller than their current home, but won’t necessarily be cheaper.
However, using equity release to help fund a house purchase can be more complex than a conventional mortgage application, and so there are various factors that anyone seeking to use this route should consider.
Time is of the essence
While the stamp duty holiday may have ended for properties worth up to £500,000, there is still huge demand from buyers looking to move as priorities shift as a result of the pandemic.
The tapered stamp duty holiday on properties worth up to £250,000 until 30 September 2021 also means many movers will be looking to complete their purchases before this date, creating a rush of cases and delays in transaction times as we approach the deadline.
For someone who is purchasing the average property used for equity release (£366,660), the difference between completing on 30 September and 1 October is £3,000 – not an inconsiderable sum for someone who is retired.
Conveyancers across the industry have increased their average timescales from 13 to 20 weeks, and specialist solicitors who may be better qualified to deal with equity release purchases are also experiencing longer turnaround times.
That being said, those specialists who focus on this type of purchase can complete up to five times quicker than those who seldom deal with equity release.
So, those looking to use equity release to help fund their house purchase should seriously consider employing the services of solicitors with experience in this area.
Homebuyers can also instruct one solicitor to deal with both the purchase and the lifetime mortgage to help speed up the process and keep costs down. It’s important to note, however, that another solicitor would need to be sought in cases where independent legal advice is required.
Organisation is key
Prospective equity release purchase clients should make their financial advisers and solicitors aware of any crucial details at the start of the process. For example, if there are any Lasting Powers of Attorney that need to be accounted for.
It’s also important for homebuyers to work closely with their financial advisers to prepare all the necessary documentation and understand the timelines involved.
Doing so from the outset will ensure that all parties have the information needed to process the case efficiently and will help to manage expectations.
Finally, getting regular updates from the adviser and solicitor will mean homebuyers are able to make arrangements for moving day.
However, make sure not to agree completion dates or book removal vans before getting the solicitor’s approval to do so.
With recent statistics from Key showing that £1.94bn was released by homeowners in the first six months of this year – a rise of nearly a third compared to the same period in 2020 – more and more people are seeing it as a compelling solution to help fund their lifestyles in retirement, whether that is to boost income or achieve their dreams of buying their forever home.
However, whatever the reason for considering equity release, it’s essential to seek advice and ensure you are fully informed of the options available to meet your needs.
For home purchase cases, taking time to complete all paperwork thoroughly and raising any potential issues as soon as possible will help reduce the number of queries that need to be raised and help secure that new home.
Stuart Wilson is corporate marketing director of more2life
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