Will Equity Release help boost our pension fund?
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My wife and I are in our seventies. We both have small pensions on top of our state pension but we’re finding our finances a bit tight – and we would really love to start taking a few more holidays once the virus is under control and we can all travel again. We live in a lovely little cottage on the Norfolk coast and we really don’t want to move so wonder if we can take out Equity Release so that we can have a bit more cash to spend. I am a bit concerned that because our village is very close to the coast where erosion is a problem, although we’re not right on the cliff edge, we might be turned down – I know that other people in the village have struggled to get mortgages for that reason. What do you think?
Diane Fish of Smith & Pinching responds:
You are right that lenders are often reluctant to agree borrowing for both standard mortgages and Equity Release if the property concerned is in a high-risk area such as where there is a flooding risk or coastal erosion.
You will find it particularly difficult to get a Lifetime Mortgage/Equity Release arrangement if your home falls within an area that is officially considered at risk. For example, I understand that North Norfolk District Council has a map that draws a line along the coast, with properties on the sea side of the line deemed as being at greater risk. However, if the area has a coastal erosion management plan, that may help.
There may be a limited choice of lenders willing to accept a property in this type of location. In addition, the application will be subject to a valuer’s comments: a valuation is undertaken as part of the underwriting process for a Lifetime Mortgage application.
I recommend that you talk to an Equity Release adviser who will know which providers to approach, in the current economic climate. Equity Release products are complex and can affect important financial advice areas, such as entitlement to state benefits and inheritance. I therefore suggest that you check the adviser’s credentials, perhaps looking to see if they are a member of the Equity Release Council, which is the industry body for the UK equity release sector.
Taking out a Lifetime Mortgage/Equity Release arrangement will mean that the value of the estate you leave to your family when you die will be reduced. It may also affect your entitlement to any means-tested benefits both now and in the future. Equity Release can be more expensive when compared to a normal residential mortgage. In addition, you will still be responsible for maintaining the property.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. There will be a fee for the Equity Release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £700.
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Any opinions expressed in this article do not constitute advice.
For more information visit www.smith-pinching.co.uk