What is the right age for looking at Equity Release?
According to recent research by Key, the most popular age group for taking out a lifetime mortgage is 70-74 (29%) but the number of younger people, aged 55 to 69, has increased to 42% in 2018 from 36% the year before. So, what is the right age for looking at Equity Release?
Certainly, Equity Release arrangements are only available to the over 55’s, so there is obviously a minimum acceptable age for lenders. However, if we consider that a traditional equity release arrangement taken out by a 55-year-old today could have 26 years or more of interest rolling up according to life expectancy statistics, then some thought needs to go towards how much interest will be added to the loan over that timeframe. It may therefore be prudent to consider whether, although lending criteria allows it, age 55 may still be too early to consider this route. Any solution presented by a reputable Equity Release adviser will include a review of potential property price increases or decreases to enable a client to take this into account.
It is important to note a key change in the market over the last few decades, which is that all Equity Release Council approved products have a ‘no negative equity’ guarantee meaning that when your property is sold, and agent’s and solicitor’s fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay the balance.
However, getting back to the topic of the original question, there are other options a person in their mid-50s could consider.
For a traditional mortgage product many lenders do not consider 55 to be an unacceptable age to hold a mortgage and many will allow the term to run until age 70 or even 75 (subject to an affordability assessment), or even longer in some circumstances. Of course, one must consider that the payments on a Capital and Interest repayment mortgage may not be manageable in later life and that is where other innovative products can come into play, such as Retirement Interest Only mortgages, or RIOs for short.
These mortgages are assessed on retirement income and are set up on an interest only basis, so the original loan does not increase in size. If the payments are manageable, this could well be a solution for releasing some equity from your home whilst not having the mortgage debt increase year on year. If, in later years, the borrower wishes to convert the RIO to an equity release arrangement this may be possible, again subject to criteria at the time.
Lastly, if Equity Release is agreed as the most suitable route to take, then recent product innovations mean there are a plethora of options available; many products allow interest payments, whether structured or on an ad-hoc voluntary basis; there may be an option to take funds on a gradual basis and not all at once, along with other features such as transparent fixed redemption charges should you come into enough money to clear the arrangement.
To summarise, there is no ‘correct age’ for someone to consider Equity Release, or the quirkily named RIO or any other type of mortgage. However, by seeking appropriate financial advice, you can ensure that you are presented with all the options available and can be advised of the most suitable route for your personal circumstances. It is important to understand that in order to be able to advise on all of the above options an adviser must hold several different qualifications – there is no one single qualification that covers all product areas.
Rowan Frayling of J Finance Ltd offers advice on Mortgages, Retirement Interest Only Mortgages and Lifetime Mortgages, otherwise known as Equity Release. Please do get in touch if we can help you look into your options. Rowan is contactable on 01635 905402 or firstname.lastname@example.org.