The pros and cons of turning your home into a cash machine
Recent figures have suggested that over 17,500 older homeowners took out equity release plans on their homes during the first six months of 2017, marking an increase of 44% compared with 2016. Equity release plans, also referred to as ‘lifetime mortgages’, allow homeowners aged over 55 to access their home’s equity without the requirement to make repayments each month. Instead, the interest is allowed to accumulate in the background and is only paid off when the house is sold either due to the homeowner’s death or a move into a care home.
UK homeowners in their 60s and 70s have now used equity release plans to release a combined total of £1.25 billion. Information from Key Retirement, a firm specialising in equity release, suggests that the most common uses for the cash received are covering the cost of home improvements, clearing debt, boosting money available to cover everyday costs, paying for holidays and helping children and grandchildren with the purchase of their first home.
The rising popularity of equity release plans is as a result of several factors. Firstly, as the average life expectancy increases, people need a larger amount of money to pay for their retirement years. The second reason is the growing value of homes in the UK. Figures from Halifax suggest that over the past twenty years, the average UK house has seen its value rise by 236%. For many people, their home is likely to hold the largest portion of their wealth.
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