Wealth Generation Of Equity Release

Posted on: 26 March 2008 by Gareth Hargreaves

According to new research from independent financial adviser Key Retirement Solutions, house prices only need to grow by 2.

According to new research from independent financial adviser Key Retirement Solutions, house prices only need to grow by 2.8% a year for a typical retired homeowner taking out an equity release scheme to ‘break-even’.

This includes the wealth they are able to generate by being able to stay in their home and the interest they pay on their scheme. Over the past five years, house price inflation has grown by around 14% a year.

Furthermore, according to the IFA’s research, an average retired homeowner taking out an equity release scheme in 1998, spending all of the money released, would still have generated around 4.97% more wealth than if they had moved to a cheaper property and invested the money released through downsizing in a market leading savings account.

Five years ago, a typical UK home was worth £65,221 and on average around £21,523 would have been released through an equity release scheme. Taking into account property inflation over the past five years and the repayment interest that would have been accrued on an equity release scheme, they would have generated around £49,766 of new wealth.

However, if they had decided to move and downsize instead, buying a property for £43,698 and investing the £21,523 in an instant access savings account that paid an annual rate of interest that was among the top ten in the marketplace, they would have generated £47,409 of new wealth. This is £2,357 or 4.97% less.

Colin Taylor, Managing Director, Key Retirement Solutions said: “Over the past few years, stock markets have performed poorly and it is only really property that has increased in value. Equity release schemes not only increase your disposable income by as much as 38%, they also enable you to stay in your home and maximise any benefits from property price increases.

“As well as helping you benefit the most from any increase in property prices, equity release schemes can free up a lot of capital in your home and ensure that you not only have enough money to live a comfortable life but also help fund any dreams or goals you have in your retirement – be it travel, renovating your home, for example.”

However, before purchasing an equity release scheme, Key Retirement Solutions offers the following advice:

1. Get advice from a specialist independent financial adviser

2. Ensure you purchase a product from a company which is a member of SHIP, the organisation which sets standards for the industry

3. Make sure that you get full details of benefits, obligations, charges and limitations of the plan that you are considering

4. Always get independent legal advice

Call 0800 064 7075 to speak to a Key Retirement Solutions adviser or to obtain a free copy of its equity release guide. 

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