Lifetime loan can turn castle into a nestegg

Homeowners are unaware of their home’s true value and what can be achieved by releasing a percentage


At a time where we are all living longer and retirement savings are becoming increasingly stretched, it may be time to change the phrase ‘An Englishman’s home is his castle’ to bring it into line with the current economic climate.

For those who are asset rich but cash poor the home can, in fact, extend beyond its four walls to become far more than just a castle. It can become a nest egg, the key to easing personal or family financial strains, or a way to fund home improvements.

Yet many homeowners remain unaware of the true value of their home and what can be achieved by releasing a percentage of its value through a lifetime mortgage. 

The average amount released through equity release increased to £61,230 in the first three months of this year, highlighting an increase in financial strains faced by the over-55s.

This is most clearly seen in the increase in lifetime mortgages being used by homeowners who have an interest-only mortgage due for repayment but no repayment vehicle in place. Four in ten borrowers are using the money they release to clear their existing mortgage, which is likely to increase as reports show that there are now 2.6million interest-only mortgages due for repayment by 2041 and worryingly, as many as 48 per cent of those face a shortfall at repayment day with an average figure of around £71,000.

Alongside this, the uncomfortable fact remains that a vast percentage of the UK – currently 24 per cent of households – have no private pension wealth. Those born in the 60s and 70s are in fact the first generation since the Second World War to be less affluent than their parents upon retirement.

These circumstances mean that it’s more important than ever for advisers to take a flexible and holistic approach to retirement planning.

Since the Chancellor announced in this year’s Budget that retirees can withdraw their entire pension pot, advisers need to support the aspirations of those living longer and the need for careful financial planning has never been more vital.

Research from Partnership shows that 14 per cent of people with a pot of £30,000 or less will use it for everyday living costs or luxury products. For this group especially, the home will be protection against a financial struggle during retirement.

Against the background of the Chancellor’s sweeping changes, lifetime mortgages will help protect a number of homeowners throughout their retirement years by providing increased financial security.

Advisers and customers must no longer think of the home as an isolated and untouchable asset. With the right support from an income retirement provider it can be so much more than just the four stone walls surrounding an Englishman’s castle.