Are you stuck in a debt-filled rut, desperately searching for a way out?
Look no further! We’ve might have the solution you’ve been looking for.
Equity release is becoming a popular alternative to traditional methods of funding retirement, and for a very good reason.
With the cost of living rising and the average age at which people retire increasing, many retirees find that they cannot afford day-to-day expenditure without selling off assets like homes or cars.
We’ll help you discover:
- If equity release is the best option for those cash-strapped and facing retirement.
- Why the UK equity release market is expanding.
- How historically low interest rates could serve you.
We’ve combed the market, studied all regulated plan providers and now we’re willing to share the inside scoop.
Is equity release truly the best option for retirees in 2021? Find out now!
Borrowing and Equity Release
Even when interest rates were low, it’s never been easy to borrow money. Banks are more conservative these days, and many people find that they do not meet lending criteria, often as a result of having a poor credit score1.
Your credit rating is generally not considered by most equity release lenders. Instead, they’ll look at your age, the condition of your health, the value of your property, and the remaining mortgage.
You can still unlock equity from your home, even if you have a small mortgage remaining on your property. You’ll use the funds released to pay back your mortgage and the balance will be available to you in a lump sum, drawdown, or a regular monthly income.
It’s also worth mentioning that equity release loans are not a quick fix like credit cards or payday loans2 and will often require you to hand over significant ownership of your home to receive funding. This type of loan is referred to as a home reversion scheme.
Why Is There a Rise in Borrowing?
There are several reasons why the UK has seen such an increase in borrowing.
There is now less emphasis on lending criteria when deciding who can borrow money and from where. This means that banks will be more likely to grant loans, even if they would not have done so before 2008. This is because they don’t want their customers to be locked out of credit should anything happen again as it did with the global financial crisis.
In addition, interest rates remain low meaning that many people feel comfortable about taking on significant debt, knowing that repayments will still only consume a fraction of what they earn each month.
This problem could worsen over time, though inflation gradually increases and erodes real incomes while living costs stay high.
There has been a shift in the attitude of households concerning debt. Whereas many people were cautious about taking on more borrowing before 2008, recent years have seen an increase in risk-taking as well as optimism that any difficulties will be sorted out somehow. This being despite evidence showing that those who borrow too much are most likely to struggle when they retire and even find themselves forced into bankruptcy3.
Why Are the Interest Rates So Low?
In the wake of the global financial crisis, interest rates were made to be as cheap as possible for some stability to return.
Previously, banks made interest rates high. This was often done by giving out payday advance loans, which are designed not to be repaid in one go, but rather on a series of smaller payments.
The intention was that borrowers needing urgent repayments would be more likely to request them from their bank, and consequently sustain interest rates at higher levels.
Many borrowers were unable to keep up with monthly repayments on credit cards, payday loans, or other forms of debt like mortgages. They had been given money by these lenders who did not do enough due diligence when deciding whether those customers should have been granted credit in the first place.
However, things are better these days, but loans can cause mounting debt that isn’t easy to repay. It’s vital to look at all your options.
Are you over 55? Perhaps consider equity release!
What Makes Equity Release the Best Option?
The interest rates now are the lowest they have ever been, so an equity release is a good option for anyone who needs to borrow money now.
If you own your property, but have little cash, then equity release could be the solution you’ve been looking for.
Many financially vulnerable people will find themselves excluded from other forms of borrowing because they don’t meet lending criteria or have a history of bad debt.
You’ll have equity release options, even if you have a poor credit rating.
The key reason for this type of financing is that it doesn’t involve much risk for lenders. Your loan is paid back from the sale of your home when you die or move into long-term care.
How Do I Know if Equity Release Is a Good Option for Me?
If you own your property outright and have a good credit history, then it’s worth considering equity release as an option. However, it’s always worth exploring all avenues before deciding what will be best for you.
What Is the Rate of Interest?
Interest rates are always changing and can be as low as 0.25% per year or slightly higher for those on variable rates – that’s the price to pay if you require borrowing now but don’t want to risk anything going wrong with your credit rating, so it may not suit everyone who needs a loan.
What Are the Benefits of Low-Interest Rates?
The benefits of low-interest rates are that they can help people who need to borrow money. Borrowers with bad credit or a history of taking out loans will usually find it difficult in the current climate.
Still, an equity release is an option as long as you meet certain criteria, such as owning your property outright and having owned it for at least five years before applying – this shows lenders how profitable the asset has been, so they’ll be more likely to lend on good terms.
What Happens if Interest Rates Change?
Interest rate changes won’t affect those who have taken out cash-released loans as these still need to be repaid even if everything else goes wrong – this means lenders are protected, and borrowers still have to pay back their loans.
The rise in UK borrowing and a strained economy means that equity release is likely the best option for many people.
With an increase in life expectancy, it’s essential to plan for your future. Perhaps take inspiration from these equity release alternatives.
In addition, if you’re in a tough financial situation, we strongly suggest you get in touch with a financial adviser who can lead you in the right direction.