Generating extra cash after you hit State Pension age isn’t easy. That’s why it’s important to check out all your money-raising options, including generating cash from your property.
Tony Munday, 67, found getting by on the State Pension much harder than he had expected.
The new State Pension pays just £179.60 a week to a single person, worth £9,339 a year, while the old State Pension pays those who retired before 6 April 2016 a basic £137.60, plus additional pension on top.
Many get much less than that, because they did not make sufficient National Insurance contributions during their working lifetime.
Tony, from Hemel Hempstead, topped up his State Pension by doing consultancy work but that dried up in the pandemic.
As a homeowner, he considered downsizing somewhere smaller. Then decided he would unlock the capital from his property instead, by taking out an equity release lifetime mortgage.
Tony decided he couldn’t face downsizing. “I have lived in my home for more than 25 years. It’s in a wonderful location, with great neighbours and south facing garden. I just didn’t want to leave.”
So he turned to equity release to solve his State Pension worries, and unlocked some of the spare equity in his home and turned it into tax-free cash.
Tony did not borrow the maximum available under the scheme, but was still able to raise £71,000, money he was free to spend on whatever he wanted.
His first step was to clear his mortgage and other debts, including credit card balances.
Being debt free gave him real peace of mind, and now he is focusing on improving the quality of his life. “I’m looking forward to spending some of the money on home improvements and a car,” Tony said.
READ MORE:Downsizing house in retirement is not the only option
Equity release “lifetime mortgages” are available to homeowners aged 55 and over, who have a home valued at £70,000 or more.
They can unlock the capital sitting in their home either as a lump sum or in smaller, regular amounts.
Customers do not have to make any capital or interest repayments during their lifetime (although can choose to if they wish).
Instead, the interest rolls up and the debt is cleared either when they die or go into long-term care.
Any money left falls back into their estate and can be passed on to loved ones as an inheritance in the usual way.
Equity release has become more attractive as property prices soar, because it allows homeowners struggling on the State Pension to release more equity, while falling interest rates have slashed borrowing costs.
It works best for those in their later 60s, 70s and 80s, as homeowners can raise more money as they get older.
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Britons own a record £4.6trillion in property wealth and David Burrowes, chair of the Equity Release Council, says equity release allows people to access this at affordable rates. “It could help many retired people boost their State Pension, adapt their homes or pay for domestic care support.”
More than 16,500 released £1.14 billion worth of equity in the first three months of this year.
Andrew Morris, senior equity release adviser at Age Partnership, said you and any partner retain the right to continue living in your home for as long as you live, or until you go into care. “You may even be able to move if you wish, subject to certain conditions.”
He said take specialist advice and make sure any scheme has a no-negative equity guarantee. “This pledges that you and your family will never have to repay more than your property is worth, even if house prices crash. It also means your loved ones will never inherit any debt.”
Morris said equity release is not right for everybody and the payout could affect your State benefits. So consider other methods of boosting your State Pension, including claiming Pension Credit or Attendance Allowance, or downsizing to a smaller home.
Tony Munday recommended talk through any decision with your family and a solicitor. “Taking out equity release will reduce the size of their inheritance, but despite that, my family supported my decision.”
Click here to request your FREE Express guide to Equity Release, provided by Age Partnership, to see if equity release is right for you.