February
6
2010
Almost one pensioner in four does not have enough money to fund their retirement, research from Prudential reveals, and one property-owning pensioner in five thinks they will have to downsize to make up the difference.
Along with those forced to sell their homes, one pensioner in six would consider taking in a lodger.
But now, pensioners can obtain cash advances secured against the value of their houses through equity release or home reversion plans.
Under home reversion schemes, home-owners can sell all, or part, of their home, and receive a lump sum, an income or both.
The amount owed can increase quickly as interest is charged on the interest added to the loan each year, as well as on the original borrowed amount.
Interest rates on equity release borrowing also tend to be higher than on ordinary mortgages at around 7 per cent.
Unlike a normal mortgage, interest is added to the principal and paid back on the owners’ death, rather than the borrower’s lifetime.
But homeowners who take advantage of the scheme will not receive anything like the actually market price of their house. Instead, lenders typically pay between 40 and 60 per cent of the property’s current value.
According to the Council of Mortgage Lenders (CML) nearly 12,000 plans were sold initially.
Overall, total borrowing by pensioners through equity release schemes now stand at 2.3billion.
But the CML believes that in future the equity release market could reach 100billion.
“Many pensioners are tempted by equity release as they are asset rich as a result of increasing house prices but cash poor due to low retirement income,” a spokeswoman for Age Concern England said.
However, these plans are not to be entered into lightly it is important that people research the market. One of the main problems with equity release plans arise when borrowers’ circumstances change.
For example, a borrower wishing to move to sheltered accommodation, or a cheaper property, may have to repay some of the loan upfront.
In addition, roll-up loans may leave borrowers with insufficient cash to buy the new property they want.
Borrowers who decide to pay off the loan early can also be hit with big redemption charges.
Also keep in mind while mortgage based products will fall within Financial Supervisory Authroitys (FSA) guidelines, the rules will not cover home reversion schemes.
However, the Treasury has announced plans to consult on the regulation of equity release schemes, often used as a means of achieving retirement income.
The Treasury added the review could mean the FSA will win the power to oversee the sector and ensure elderly people do not lose out.
But there are other ways to make money from your property without having to sell-up.
One home-owning pensioner in ten would consider equity release to top-up their retirement income. Equity release comes in two main forms, home reversion plans and lifetime mortgages.
“There are ways of using your property to generate income in different ways. A lifetime mortgage can suit people who do not want to leave their home in retirement,” said Prudential’s Mr Crossley.
“More people are considering this option nowadays, and this is in part because better, more flexible products have appeared on the market.”
There is no substitute for planning and while obviously the earlier you start the better, there are many things you can do throughout your life to esure a stable financial situation for retirement. Its worth talking to a financial adviser to find out more about your pension options just dont get stuck.
January
30
2010
Buying a property is likely to be the largest purchase you ever make finding the right deal for you means choosing one mortgage from the many hundreds available. This will be much easier if you know what youre looking for.
Whats Your Status?
Depending your life situation, age, income and financial status, you will need different things from your mortgage. Whether thats flexibility, low rates or security, take the time to have a good look at where you are now, and where you want to be long term.
In For The Long Haul!
Most mortgages are for a 25-year term so its an agreement that you could be locked into for a substantial part of your life. This means you need to have at least a vague idea of how your finances are likely to shape up long term no one can predict the future, but good planning is one way to help ensure you meet the challenges to come.
Get The Budget Ready
The first thing to do is to draw up a budget you need to know what income you have every month, and all your outgoings. Be realistic theres no point exaggerating your income or ignoring certain expenses. You want to buy your own home, but you also want to be able to eat once youve moved in! Take into account all your bills, council tax and loan payments, as well as living expenses such as food, running costs for your car, going-out costs and clothing. Check bank statements to make sure you have included all your usual expenses.
Crystal Ball Time..
Next, give some thought to your future. Now we dont really mean for you to go to some charlatan and ask what your personal circumstances will be in the future, that would be just silly. However, what you would need to do is be honest with yourself in answering some personal questions in an attempt to plan ahead for financial reasons.
Do you expect your income to rise over the next few years, or will it stay the same? Do you have dependents, or are you planning a family? While some things are uncertain, you should be able to tell whether your needs will stay constant for the next five years, or are likely to change substantially.
Your budget should give you a fair idea of how much you can afford in repayments each month bear in mind there will be other costs incurred when buying property, such as legal fees and stamp duty.
Generally, a mortgage lender will also look for a cash deposit usually 5 or 10 percent of the total cost of your home. You will then repay what you have borrowed in monthly instalments. Read on for more detailed information on how mortgages work.
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