2021 was a record year for the equity release market. Latest figures from the Equity Release Council show £4.8 billion of property wealth was released by homeowners over the age of 55, an increase of nearly £1 billion when compared with 2020. Delve into this and more in our Q4 2022 report.
The cost of equity release has fallen dramatically from where it was five years ago, and High Net Worth clients are beginning to realise they can now access the wealth tied up in their property at extremely low cost. Products have also evolved, with far more flexible options than ever before.
David Forsdyke, Head of our Later Life Finance team, comments:
“Because equity release products are more cost effective and flexible these days, our clients are using borrowing to enhance their lifestyle, for home improvements, tidying up other debts, buying holiday homes, or helping family members.”
For example, we recently helped a High Net Worth client who had considerable funds in a SIPP fund and had been topping up his income by drawing from it. He also wanted to help his children and grandchildren. However, as he is already a higher rate tax-payer, any funds drawn from the SIPP were costing him 40% in tax (pension income from drawdown is taxed at your marginal rate).
By setting up a lifetime mortgage (the main form of equity release) we have given him the option of drawing funds from his property wealth instead, either as a lump sum (perhaps for gifting to family members) or as a regular top up to his income. Not only are the mortgage funds not subject to income tax, but borrowing rates available today are still below 3%. The client and his Wealth Manager can now make flexible decisions on the most tax-efficient, cost-effective source of funds.
For wealthy clients, equity release is also becoming a key estate planning tool, as creating debt in order to gift money can lead to Inheritance Tax savings. David and his team have been involved in a number of scenarios, as he explains:
”We are working alongside a growing number of trusted professionals, including Lawyers, Family offices and Wealth Managers, to assist them in Estate Planning for their clients who are normally in their 70s. For those with property wealth of over £2 million, creating a debt against their main residence and then gifting that money away can be a very efficient way of reducing the potential Inheritance Tax bill their beneficiaries will eventually face.”
Read the report here.
David Forsdyke has 27 years’ experience in financial services, including six years with the Financial Conduct Authority, the industry regulator and two years as a member of the Equity Release Council’s Standards Board.
If you would like to know more about equity release, please get in touch with David Forsdyke by email david.forsdyke@knightfrankfinance.com or by call 01483 947764.