Q I am 73 years old with an annual income after tax of £23,000. My housing costs have soared, partly because of a cladding issue, so I do not have as much spare cash for holidays, theatre, art exhibitions, concerts and so on. I realise this is a luxury problem compared with other’s worries. My four children all own properties, partly financed by my pension lump sum. I have also been diagnosed with a degenerative eye condition, which means my trips to galleries will be truncated. Would releasing some cash via equity release be a good idea? I own my own flat, which is worth about £230,000.
RN
A I can’t say if equity release is right for you but I can say that it is an option. Because you are over 55 and your flat is worth more than £70,000, you are able to release cash from your home with an equity release mortgage. How much cash you can release depends on your age and the value of your home. According to Andy Vickery, a qualified equity release and mortgage adviser at Money Release who specialises in over-55s finance, at 55, for example, you can take 21.5% of the value of your property; at 70, 37.1%, going up to 50% if you are over 80.
Putting your details into the Money Release equity release calculator, it turns out that the most you could take out is £92,000. But you don’t have to take it all at once. You can instead choose to drawdown smaller amounts, which, given that you are looking to top up your annual income, would seem to be a sensible thing to consider. It also has the advantage of reducing the amount of interest charged as you don’t pay interest until you take your money.
Money Release says the average interest rate on equity release loans is 6%. The interest doesn’t have to be paid until the property is sold as it is added to the amount you originally borrowed but you should consider the financial implications of this carefully.
