Using property wealth to future proof your home
An important part of financial planning in later life is considering where you will live and the associated costs.
As we get older, our housing needs change. What might have been a suitable home in our 40s, 50s and 60s can quickly become unsuitable or undesirable with age.
Perhaps there are too many rooms to clean, too large a garden to maintain, or the location is too distant from local amenities.
So thinking ahead to future proofing your home as you enter retirement is an important consideration.
Some new figures suggest equity release is being increasingly used for home improvement.
Improve your lifestyle
Saga Equity Release Advice Service published the figures which show a 30% increase in equity release sales during the past year. They say this shows people are becoming increasingly comfortable with using the equity they have built up in their homes to improve their lifestyle or those of their families.
Their analysis suggests, over the last five years, the way people choose to use money from equity release has changed significantly.
Perhaps fueled by a desire for people to stay in their own home for as long as possible, home improvement has been the main reason people choose to withdraw the equity in their property since 2012.
The proportion of people using the some of the money they release for this purpose has increased by 10% over this period.
Whether it is for new kitchens or bathrooms, to carry out essential maintenance or adapt their home so it is suitable for them throughout their later life, two thirds of people spend the money on their home, typically spending over £13,000.
Gifts to younger generations
Not content with improving their own lifestyle, older generations are keen to pass on the wealth they have built up in their home to give gifts to younger generations of their family.
Often for housing deposits or to cover wedding costs or education for their grandchildren, the amount people have gifted to family has increased by over a quarter since 2012 and now typically stands at £33,000.
Where gifts are being made to family members during your lifetime, it’s important to factor these into your financial plan and understand the impact they have on your own lifestyle.
As financial planners, we encourage lifetime gifting, where it is affordable and does not derail your own goals.
Important safety blanket
The analysis also found that having an emergency fund is an important security blanket for those on a fixed income later in life.
But while this was another key reason 40% of people took money through equity release five years ago, people now are much less likely to use their housing wealth to cover unplanned spending.
Just 25% give this as one of the reasons they used equity release last year, with people on average taking £3,600 to keep aside for a rainy day.
This could largely be down to the increasing popularity of draw-down plans, which allow people to take money as and when they need it rather than incurring interest on the full amount when they first take out a plan.
Gloria Barker, head of products at Saga, commented:
“Our research demonstrates that equity release is increasingly being considered as a mainstream solution future proofing their homes and income for later life – making them less dependent on the state.
“That’s a big change from the traditional perception that it is limited to those who find it hard to make ends meet.
“While people are beginning to see their house as an asset to fund later life rather than something for their family to inherit, this does not mean that they are not prepared to help family out financially.
“By far one the biggest chunks of money they withdraw is to gift to their relatives, showing that they are keen to pass their wealth on down the generations.”
Here at Informed Choice, we don’t offer advice on equity release and will, where necessary, refer our clients to a specialist adviser.
We do however believe it is important to consider equity release in the context of an overall financial plan, factoring any expenditure or gifting into your lifetime cash flow forecast to truly understand its financial implications.