One possible tool to consider, amongst an array of options, might be Equity Release (ER)?

Equity release house image

It’s a bit of a misconception that we just need extra cash to fund our ‘old age’, as according to the Equity Release Council, homeowners from their mid-fifties+ withdraw on average £4.2m of housing wealth per day*. No wonder then that Q2 of this year saw ‘ER’ lending of £384.3m, the largest of any quarter in 13 years!*

Perversely it appears that the Pension Freedoms legislation has actually increased the number of people going down the ‘ER’ path. Is this, perhaps, seen as the new ‘Pensions Drawdown Tool’? Those with the best pension pots are usually 45% tax payers and sitting on £2.0M+ homes. If you were to use this property in an ‘ER’ scheme you might, say, draw circa £5,500 per annum to fund one of your annual holidays. To receive the same ‘net’ figure from your pension, be it a conventional annuity or a drawdown under the new pension’s freedom, you would require £10,000 per annum. To create this, near double figure, would require a much greater pensions pot in your portfolio and, given the current volatile stock market, probably see a massive dent in the fund as it reels from both drawdown and stock market collapse. House prices do drop from time to time but for the well placed owner in the South East of England regular, and large, house price inflation has been a feature of their lives for many years now and this growth helps to offset any ‘ER’ withdrawals. No brainer or what?!

But why such a rapid growth in ER? Perhaps people are feeling the need to break out and enjoy life before its game over? This follows suit with more and more people wanting a ‘work/life balance’. Like a good friend of mine said to me, on your death bed, you’d never think “oh I wish I’d have worked harder”, rather “if only I had bought that speedboat, trekked through the Amazon, drank more fine wine’…the list is endless!

This attitudinal shift, along with steady house prices rises over the last 20-30 years, makes Equity Release more and more attractive as an extra source of income in later life so that that a ‘distant dream’ becomes a ‘memorable reality’.

* ‘Equity Release Lending Surges to All-time High in Q2 Following Pension Freedoms’, Equity Release Council, 28th July 2015,  http://www.equityreleasecouncil.com/news/equity-release-lending-surges-to-all-time-high-in-q2-following/