Welcome to another article from David Forsdyke, Later Life Finance expert at Knight Frank. Here he discusses how homeowners over the age of 55 can use the equity in their homes for home improvements, and in many cases increase the value of their property.
So far as I’m concerned I’ve gone the route of a ‘Garden Office’ from where I’m writing this blog today. It’s my ‘Man Cave’ into which only a few interlopers have transgressed – It’s building was interrupted and delayed due to the pandemic and it’s now 99% completed.
Over the last 15 months the Covid 19 pandemic has encouraged many of us to make changes to our homes. It seems every day someone is telling me about;
- Redecorating and refurbishing the reception rooms now they are spending more time at home, or looking forward to welcoming family back for Sunday lunches
- Building a new office space or summer house at the end of the garden, so they can escape from ‘home’ for a few hours
- Modernising the study, so they can work from home, or pursue their hobbies and interests, more easily
- Redesigning the kitchen and dining area, and buying new equipment, now they’re eating at home more often.
In many cases these changes are adding value to the property and are a sensible investment, as the pandemic has made a fully modernised and well-equipped home much more desirable. Building a conservatory for example, can increase the value of your property by around 10%, while turning a garage into a living space, or adding a bedroom by converting the loft, can increase it by 15%*.
However, if you don’t have spare cash available, raising funds for the latest home improvement project may not be as straight forward as it was 10 years ago. For older borrowers remortgaging could come with a number of hurdles, as mortgage lenders have strict affordability rules and want the comfort that you can afford the mortgage payments well beyond your retirement. If you are over 55 they may only agree to lend to you over a short period of time because of your age, which can make repayments expensive.
So what’s the answer?
A Lifetime Mortgage is a different kind of borrowing, which is only available to homeowners over the age of 55. Home improvements continue to be the most popular reason for taking out a Lifetime Mortgage, with over 60% of customers reporting this as the main reason for raising funds**, and there are a number of very good reasons for this;
A Lifetime Mortgage does not require you to make mortgage payments unless you want to. You can allow the interest to roll up on top of the loan, or you can choose to pay some or all of the interest each month, or make payments on an ad-hoc basis. You can even repay the loan gradually if you have surplus funds, as most schemes allow 10% or more of the loan to be repaid each year without charges or penalties. This means you can raise the funds you want, complete the home improvements, and then decide how much and how often you want to pay, if indeed you want to pay at all.
There are no affordability assessments, which means you can borrow the amount you need rather than worrying about how much your income will allow.
Lifetime Mortgages come with a number of safeguards thanks to the Equity Release Council, including the right to remain in the property for the rest of your life, and a No Negative Equity Guarantee, which means no matter what happens to the property market, you can’t owe more than the value of your home.
Ahh, but what does it cost?
The cost of Lifetime Mortgage borrowing has fallen dramatically over the last two years. At the time of writing this, the market leading rates are well below 3%, and are fixed for life, so what once was an expensive option is now much more attractive. In addition, the choices and levels of consumer protection have both increased dramatically in recent years. Maybe it’s time to make that dream kitchen refit a reality, build that luxury summer house in the empty space at the bottom of the garden, or convert the garage into a new living space.
If you would like to know more about how a Lifetime Mortgage could help you achieve your home improvements, you can talk to David or a member of his team by emailing firstname.lastname@example.org or by calling him direct on 01483 947764. David runs the Later Life Finance team at Knight Frank Finance and is a recognised expert in this field.
*Property Price Advice Feb 2021
**Key Market Monitor January 2021
The choice of interest rate and product terms will depend on your circumstances and the amount of the mortgage. Before you make any commitment, David or one of his team will carry out a full review to establish your needs and preferences and if you meet the criteria, they will give advice and make a recommendation to you. Knight Frank Finance LLP is a limited liability partnership registered in England and Wales with registered number OC322399. The principal office of Knight Frank Finance LLP is situated at 55 Baker Street, London W1U 8AN. Knight Frank Finance LLP is authorised and regulated by the Financial Conduct Authority under Financial Services Register number 459093.