How can my property top up my income in retirement?

David Forsdyke, Later Life Finance expert, explains why Equity Release is increasingly becoming part of retirement planning.

In 2017 Opinium reported the average size of pension savings was just £28,000. I doubt it has improved much since then, and it doesn’t take a genius to work out that isn’t going to last long for the average person. So where is the rest of this ‘average’ person’s retirement income going to come from? In the same report, Opinium explain that in the future, income in retirement will come from a wide range of sources and not just from pensions. These sources include ISAs, downsizing to release funds, buy to lets, other savings and investments, and for homeowners - their main residence. So how do you get income out of your main residence without selling it or letting it out?

Equity Release is the answer to this question. The main form of Equity Release is a Lifetime Mortgage. Older homeowners looking to stay in their current home, but who want to unlock the wealth they have built up in it, have two options under a lifetime mortgage:

• Set up a draw down facility

Sometimes this is known as a reserve facility, and this works well for many. Most Lifetime Mortgage providers will offer products with a draw down or reserve facility. This is an amount pre-agreed when the lifetime mortgage is fist taken out and the borrower can withdraw (draw down) these funds when they want them. This can be on a regular or ad hoc basis, and the advantage to the borrower is they won’t pay any interest until they have withdrawn the money. This sounds ideal if the borrower needs to top up their income, and it gives them control over how much and how often they withdraw. Borrowers must be careful not to withdraw the whole facility too soon though, as they will find it very difficult to access additional funds in the future.

• Set up an ‘Income’ Lifetime Mortgage

There are products that pay a fixed amount of ‘income’ each month. This sounds like the ideal solution, and I have to agree it is very close. The borrower selects a fixed amount to be paid to them each month and also a fixed term over which they will receive these payments. The only downside is that the payments don’t take account of inflation and can’t be extended if the borrower finds they need the additional money for longer. The regular payments from the lender are not actually income; they are borrowing. They look and feel like income, but if you already have one of these products, please remember you don’t need to include it as income on your tax return each year.

The Equity Release industry already has some great solutions to help older homeowners to top up their income. However there is still room for further development of products in this market. I am confident, at the current rate of product innovation, it won’t be long before we see even more options available for homeowners using their home as part of the retirement planning.

If you would like to know more about using your property as a source of income, Equity Release or the wider Later Life Finance market, visit our Borrowing Into Retirement section or give us a call.