An Englishman’s home is his castle but can also be a millstone around his neck or even a get out of jail free card. As families leave home we may find that the family home is bigger than we need, the garden too much work or that the roof etc. always seems to be an issue. Sometimes keeping up with the maintenance can be a drain on resources when income drops whereas in the past it was easily affordable and a priority for the overall family wellbeing. Some larger and older homes can also be expensive to heat especially those large rooms. Downsizing is an option for some but here David Forsdyke discusses financial opportunities that could turn around an asset rich, cash poor situation into cash in the bank and thus opportunities to spend it! Bricks and Mortar are impossible to spend however with some financial magic you may find you can have your cake and eat it, or rather have your home’s assets value and live in it!
A growing number of those approaching retirement are worried about running out of money. Here’s how their property can help.
A recent report from the Equity Release Council shows 34% of over 55’s worry about running out of money, and this increases to nearly half (48%) among women who are not yet retired. A similar number are also concerned about their health and how they might meet the cost of care if they need it. David Forsdyke of Knight Frank Finance suggests property wealth can provide welcome funds to make up the shortfalls, and more importantly can prevent the health problems caused by financial worry & stress in later life. David says “Older homeowners have enjoyed decades of growth in the value of their properties, but may be short of pension income, savings and other liquid funds to cover their day to day expenditure, or meet one off costs like buying a new car. They have found themselves asset rich, cash poor. Thankfully they have a number of modern options to help unlock the equity they have built up in their home over many years, while continuing to own and live in it. The cost of such products has dropped dramatically in recent years, and the flexibility they now offer is making them very attractive.”
David outlines four of the options homeowners should consider if they are worried about their finances:
- A drawdown facility
Under a Lifetime Mortgage, which is a special type of mortgage only available to the over 55’s, you can have a drawdown facility (sometimes known as a reserve facility). This is an amount pre-agreed with the lender which you can withdraw (draw down) when you want or need the funds. This can be a real blessing as it gives you quick and easy access to funds in order to top up your income, pay for emergency expenses, or simply meet the cost of a particular event or occasion. For example, Birthdays and Christmas can be expensive especially if you have grandchildren, so being able to draw down some extra funds can remove the stress and worry. The advantage of a drawdown facility is that you won’t pay any interest until you have withdrawn the money. If you never use it, it doesn’t cost you anything. On the down side, if you use it too quickly you do risk not being able to access more, so it is important to take good advice and only borrow what you need.
- An “income” lifetime mortgage
There are products that pay you a fixed amount of ‘income’ each month over a fixed term. This could be a very attractive option if you are worried about running out of money, or you already know your outgoings are higher than your income. The only downside is that the payments don’t take account of inflation and can’t be extended if you find you need the additional money for longer. It’s important to remember that the regular payments are not actually income; they are borrowing. They look and feel like income, but do not need to be included as income on your tax return each year.
- Borrow a lump sum
Interest rates for lifetime mortgages are at the lowest levels we have ever seen, so borrowing a one off lump sum could be a wise decision. The funds could be used to make improvements to your home which might reduce running costs or simply make life a little more comfortable. You could also borrow to pay for significant one off purchases. For example, a new more efficient car might help lower your monthly spend on fuel, insurance and maintenance. It is important to remember that borrowing in this way is a long-term commitment, so sure you take professional advice and think about what you might need both now and in the future. A good adviser will look at all the options and implications with you.
The simplest way to release equity is to sell your property and buy something smaller. However, do bear in mind there are costs involved in doing this, including stamp duty, removal fees and estate agents costs. Many older people find moving quite stressful, so do think about all of your options before selling. Your health is more important than your wealth.
There may also be other options open to you. David Runs the Later Life Finance team at Knight Frank Finance. His expertise has helped a number of men and women address their financial worries in later life. David, or a member of his team, will guide you through all of the options available and recommend the most suitable solution based on your needs and circumstances. Every client is different and needs tailored advice. If you would like to talk to David or a member of his team please get in touch by email firstname.lastname@example.org or by calling 01483 947764.