When Knight Frank Finance launched its later life finance service in July last year, we identified that there were a growing number of homeowners with significant property wealth who wanted to release some of the equity they had built up, but were underserved by advisers who understood their specific circumstances and could advise accordingly. 

Since launching the service last summer, the average lifetime mortgage (the most common form of Equity Release) arranged for a Knight Frank Finance client is just under £480,000, secured on an average property value of almost £2 million. That compares to an industry average loan size of approximately £70,000 on an average property value of £380,000, according to Equity Release Council data.

We’ve also been able to beat the market when it comes to rates, with Knight Frank Finance clients paying on average 3.11%, compared to an industry average of 4.11%. The lowest rate secured for one client was just 2.22%. These rates are fixed for life.

Why release equity from property in retirement?

Borrowing in retirement was historically regarded as a last resort, however attitudes are changing and in reality it can be a shrewd financial decision. Financial advisers are increasingly including property assets alongside other sources of wealth when looking at potential enhancements to clients’ income, lifestyle and tax efficiency. For example, pension funds benefit from certain tax advantages, and can be left to your beneficiaries tax free if the individual is under 75. In comparison, a main residence is subject to Inheritance Tax. This raises an interesting question around tax efficiency and whether it is better to draw funds from property over pension assets.

We also often hear from clients eager to help grandchildren who have been priced out of the housing market following two decades of substantial price increases. Borrowing against your property in order to gift the equity to children is regarded by HMRC as a potentially exempt transfer (PET). A PET allows you to make unlimited gifts that are exempt from Inheritance Tax if you live for seven years or more, following the gift. The interest rates on these facilities are often lower than if the children or grandchildren were to borrow it themselves.

Most lifetime mortgages also come with an arrangement known as a 'drawdown facility', which makes them a sensible way to help family with things like school fees. A drawdown facility gives you access to small, but not insignificant lump sums when necessary.

Lifetime mortgages can even be used to purchase property, and we have had a number of clients eager to move home to be closer to their family, or to secure a new way of life, whether that's by moving to a more rural location, or buying a new property that offers different facilities.

Maintaining a lifestyle

There are many other attractive opportunities for homeowners with substantial property wealth, when it comes to releasing equity from that property, such as topping up income in later life, making home improvements to enhance the property's value, consolidating debts, or simply funding the fun things in life like a new car, a new experience, or a holiday once the possibility of travel returns. Maintaining a lifestyle can come at a cost, and unlocking property wealth could be one way to meet that cost.

Individual situations vary, so we recommend seeking advice from an Equity Release qualified professional. Contact our Later Life team on 01483 947764, or email us.