With most other lending areas introducing stricter conditions, restricted availability and in some cases inflated interest rates, it's surprising to see the equity release sector beginning to broaden its horizons by lowering minimum ages and increasing maximum loan to values.
The last two weeks have seen two providers of equity release lifetime mortgages, New Life Mortgages and Prudential reducing the minimum age to 55 from 60. In a market of around 20 providers, only Scottish BS has a lower age limit of 50, and three other lenders with a minimum age of 55.
According to Key Retirement Solutions, the average age to take out a lifetime mortgage is around 70 years old. But with the current climate of insufficient pension pots many people are expected to need to supplement their pensions at an earlier age and one of the ways of doing this is through the equity found in their homes.
While releasing equity earlier in life may offer an immediate solution for borrowers needing extra income, there is an enormous difference in the interest charge between taking out an equity release product at an earlier age.
Releasing £50,000 from the value of your home at the age of 55; will see your debt grow to a staggering £240,819 in the example below. That's almost five times the amount you originally borrowed.
The following table shows outstanding rolled up debt based on an original loan of £50,000 and the annualised rate of 6.49% offered by the Lifetime Mortgage Lump Sum Option from Prudential. End of term is set at age 80.
Age taken out
Term of product
Total debt incurred
In our -live now, pay later' culture lenders are opening their products to a wider potential market. We are regularly hearing about increasing levels of debt and insufficient pension income. Following a decade of rising house prices, many people now approaching their retirement, are finding that the majority of their money is found in their homes.
But in times of tightening lending conditions, and the first signs of property prices falling it's perhaps an usual time to see this relaxation of criteria in a market dependent on growth and stability for its success. There must be a rosier picture foreseen for the medium and longer-term future.
But, however tempting it may seem to dip into the equity in your home between the ages of 50 and 60, it is advisable to consider all of your options. Taking on such large sums of debt needs serious thought and the help of an adviser is a must. Releasing the equity available in your home may also affect the amount of state benefits to which you are entitled.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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