| Should you try to squeeze a pension from your property?
Pensioners are being left with little choice than to take out equity release mortgages to top up their insufficient pensions. The situation will get worse with greater numbers of people discovering that their pension pot will be insufficient for their needs. In addition, figures from Mintel out earlier this week show that only three in 10 people retired when they reached state pension age over the year to February 2012, down from 48pc the year before. Erratic stock markets, low interest rates and falling yields on government bonds mean that the valuation of most people's retirement income has fallen. "Equity release is about a life style choice. For many, equity release will be an attractive option, and for some there may be no other choice - particularly if they are struggling under the weight of an endowment which will not pay off their mortgage. Philippa Gee from Philippa Gee Wealth Management warned that people were taking out the mortgages too early. The loan can be taken as a lump sum, with interest charged on the full amount from the outset, or flexible plans allow for sums to be drawn down at intervals and interest is charged only on the amounts drawn down. Tom McPhail, a pension expert from financial advisers Hargreaves Lansdown, said that while equity release could be part of the best solution for cash-strapped pensioners, many people were regarding it as the very best solution when it is in fact risky and not always efficient. "Just assuming you're going to be able to do equity release as your retirement plan is risky in the extreme," he said. Not everyone can downsize and many individuals are relying on their properties for a retirement income. There are other disadvantages to equity release. These plans can also be inflexible if you have to move, or have someone move into your house to care for you. Just Retirement said that, although the take-up of equity release was greatest when people hit 70, there was a sharp rise from the age of 59 onwards. Ray Boulger of John Charcol, the mortgage broker, said some families might do better by offering to pay an income to the older generation in return for not taking out an equity release mortgage. The age at which people are taking out the mortgages is also falling, with the average age of 70 masking a large uptake at the age of 61. The most popular form of equity release, also known as a lifetime mortgage, involves securing a loan on your property. If you require to redeem these schemes early, perhaps because you make your mind up to trade down to a smaller property, there can be onerous penalties to pay, costing up to 25pc of the initial sum borrowed. For those thinking of equity release it may be possible to remortgage in a conventional fashion. Equity release appears to be the easy option for hard-up pensioners but it isn't without its pitfalls. Which? said one of the main issues was consumers getting locked into expensive interest rates due to the high exit penalties for repaying early. A spokesman for Which? said: "Equity release mortgages can be complex and an expensive way to borrow, so it is very important that consumers know what they are signing up to. He said many people were taking out the mortgages too early, because they were alarmed at their lack of cash on retirement. |
Sunday, 3 June 2012
Should you try to squeeze a pension from your property?
