Plundering our homes for pension income

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elderly man's glassesMCT/ABACA/Press Association Images

New figures from the equity release industry have revealed that 10% more has been released from UK homes than this time last year. The proportion of people opting for monthly payments has increased too, so now 67% of people are releasing equity from their home in order to boost their retirement income.

So is this clever retirement planning or a disaster waiting to happen?

The increase

The figures are not to be sniffed at. The SHIP statistics show that between January and March, a total of £199.1 million was released.

The vast majority of this is what is known as a drawdown mortgage, where you eat into the equity in your home by withdrawing a bit every month. In addition, interest will roll up, and the whole lot will come out of the value of the property after it is sold.

The argument

On the one hand, it's a perfectly sensible option for older retirees who may be living in a million pound house and don't have a spare penny to keep it from falling down around them. Andrea Rozario, Director General of SHIP is upbeat about the figures, saying:"The increase in the number of customers electing to drawdown their housing wealth in stages reflects the growing awareness for the different uses of housing equity - such as supplementing an existing income."


However, there is a flip side to this argument. The price people will pay is that they cannot use the family home for any other purpose. It means that if they need long term care later in life they may not be able to sell up and use the proceeds to pay for their care, because they have spent their equity already.

Inheritance

It also means that their families will not receive the inheritance they may be expecting. Prudential looks at the inheritances people are planning to leave in an annual survey, and gradually the fugues have been dropping. For the first time this year less than half (49%) said they thought they could afford to leave an inheritance and fund their own retirement with the cash and assets they have.

Given that according to Unbiased.co.uk, 10% of people are relying on an inheritance to fund their own retirement, this could leave them in serious difficulty if they aren't kept fully up to date with equity release plans.

The experts recommend, therefore, that anyone considering equity release thinks carefully about all their options, and speaks to their family. They may well end up needing to draw equity from their home, but at least that way there will be no nasty surprises.

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