We’ve all had some form of mortgage during our lives. A residential mortgage enables us to get onto the property ladder with the hope of one day owning 100% of its value, on or before retirement. However, a house that was befitting as a family home, may not suit once the children have flown the nest. Therefore, a recap in lieu of future financial requirements maybe necessary.
Costs are an important feature of managing one’s retirement lifestyle. Living in a larger property with rooms unoccupied, or unused, can lead to unnecessary utility costs. Many people are reaching retirement still paying a mortgage. However, it may be time to consider whether remaining in the property is still viable option. For many this decision to leave the family home can be difficult & emotional.
Moving house in London can raise some serious issues financially. The increasing expense of London properties mean that to move upmarket in retirement can be a struggle to raise funds & compounded under recent Mortgage Market Review (MMR) regulations.
How can retirees fund a house move in retirement?
Mortgage products that could assist Londoners age 55+ to move home are equity release schemes. Remember, people can up-size & downsize in retirement, dependent upon their requirements. Additionally, a sale/purchase may be necessary for mobility reasons such as a move to a bungalow or retirement development. Or simply, in our golden years we may want to move nearer to the children, either to assist with the grandchildren, or roles reversed when home help may be necessary should health dictate.
Should a shortfall exist between the sale of your London home & any prospective purchase, then finance maybe required if substantial savings are unavailable. To bridge any shortfall, equity release can be applied for on the property which is intended for purchase. The equity release application works in exactly the same way as any residential mortgage would; it is raised on the home you’re buying. On completion the lender issues the equity release funds to the conveyancing solicitor who adds it to your sale proceeds, which should then add upto the purchase price of your new property.
Equity release on downsizing
Should a mortgage exist into retirement, there may come a time when the mortgage company demands repayment. Many lenders under MMR are reigning in their interest only mortgages by not extending them as they had previously. Therefore, to repay these mortgages homeowners either must raise alternative finance which would be difficult post age 60, or downsize to a smaller property which would raise sufficient equity to clear the mortgage.
Should this existing mortgage have a high loan-to-value ratio, then there may not be a great deal of net equity to buy a house with that meets with your requirements. One solution could again be equity release. By applying for equity release on the house you are downsizing to, you can release equity on it, as you buy it.
Case Example – Downsizing with equity release
As an example, Ivan is age 70 & having to sell the family home valued at £300,000 as Santander are demanding repayment of his £150,000 interest only mortgage. Ordinarily, this would leave him with £150,000 net equity to buy his next house. However, the property he wishes to move into for the rest of his retirement is on the market for £200,000, leaving him £50,000 short. This is where equity release schemes can play they part.
Ivan could apply for a lifetime mortgage on the £200,000 property he intends to buy. Based on age 70, he could potentially release upto £72,000. However, as only £50,000 is required, he could apply for the Aviva Flexi Lifetime Mortgage plan on a drawdown basis, and additionally have £22,000 left in a drawdown reserve facility. The £50,000 from the equity release scheme could then be added to the £150,000 sale proceeds of his existing home. This has the required result of Ivan finding the £200,000 he needs for the property he wishes to buy.
Moving home summary
Equity release schemes in London are not only suitable to help with buying a new house, but also should portability be necessary. Therefore, any existing lifetime mortgage held, can be transferred across to a new property as long as it meets the existing equity release company’s qualifying criteria. This ensures that the scheme meets the Equity Release Council’s code of conduct rules and provides flexibility for the equity release holder.
In essence, equity release mortgages have come a long way in design & flexibility to provide retirement solutions for not only today, but also should circumstances change in the future.
If you require independent advice on moving home in retirement or need to calculate your maximum equity release, please contact the London Equity Release team on 0800 028 3034 or email email@example.com