I recently heard financial journalists talking about Equity Release on TV and I was surprised that despite considerable product improvements over the last few years, they often show little understanding around the subject. In this particular instance, they said they would not consider releasing capital from their home through such a scheme due to the high interest rates charged, along with rolled up interest, and would prefer to downsize to release the capital in their property.
They were being interviewed in a London studio and I believe that too often, commentators fall into the trap of assuming that everyone lives in an area where property prices may have seen 20-30% + growth over the last 5 years. Unfortunately, not everyone has the luxury of seeing this level of increase. In my area of East Midlands, the increase has only been around 8-10% during the same period and this small rise on property prices, which are already lower, has a knock-on effect on the client’s ability to down-size.
As responsible advisers, we always look at this as an option but it is not always a practical solution. Take for instance the following:
Recently I came across a couple, both in their 80s with one suffering early stages of dementia. They have been told by their mortgage lender that their £75,000 interest-only mortgage has to be repaid by April 2016 otherwise they will have to change to an unaffordable repayment mortgage or find some other means of repaying the debt. This is a worrying time for such elderly clients with deteriorating health.
Their 3 bedroomed detached house is worth £165,000, an average price in this area. Their children cannot help them financially; the banks and lenders will not consider them due to their age and income. Would most people in their circumstances really want to move and downsize, considering the prospect of moving to an unfamiliar area with at best £90,000 left after repaying their mortgage?
Perhaps these clients should have taken steps to avoid their current dilemma some time ago, but we advisers see these examples regularly and suitable solutions, often through Equity Release need to be found.
As a consequence of failing to fully understand and consider clients’ difficulties and by making sweeping statements about the unsuitability of Equity Release, perhaps these commentators do a dis-service to the industry and potential clients by perpetuating the misconceptions of these products.