Equity release in uncertain times
15 July 2020
The uncertainty created by coronavirus
If you’ve felt your world has shifted due to the coronavirus pandemic – and you’re not quite certain how your new landscape will shape up over the coming months and years – you’re not alone. Researchers from the Federal Reserve Bank of San Francisco have called it The Uncertainty Channel of Coronavirus (March 2020). Professor Mark Freeston of Newcastle University has pulled together an international ‘Uncertainty in Coronavirus Research Network’ to study the psychological impact of what he calls the ‘global climate of uncertainty’, with the aim of exploring ‘the relationship between uncertainty and distress in the context of COVID-19’.
Financial planning in uncertain times
When your world has been turned upside down, and you can’t see what shape it will take when it finally settles again, it can be hard to plan for your future. In such uncertain times, whatever planning you do needs to be able to accommodate the unexpected and give you margins to allow for a range of potential scenarios.
This is especially true of financial decisions, which need to be able to adapt to support changing circumstances for you and your loved ones. With the government scaling back support for the furlough scheme and mortgage, loan, personal and business taxes that have been postponed becoming due over the coming months, it’s clear that the full repercussions of the coronavirus crisis have yet to be felt, both for the economy and for individuals.
Flexible equity release products
If you’re considering releasing equity from your property to help realise your retirement dreams, ease your day-to-day finances or help support loved ones during these uncertain, and challenging, times, there are a number of equity release products that offer flexible features that mean you won’t be straightjacketed if your circumstances change:
- Drawdown options: Equity release schemes with drawdown options enable you to take out a lump sum now, but with the option to drawdown more cash in the future, should you need it. Interest only becomes payable on the money you have withdrawn. Three-quarters of homeowners aged 55 and over who released equity from their property in the third quarter of 2019 chose a drawdown scheme, so this was already a popular option, even before the uncertainty of coronavirus.
- Flexible interest-only equity release schemes: Interest-only equity release schemes enable you to pay off the interest, if you have the income to do so, meaning that you can keep the amount you owe to the size of your original loan. However, some interest-only products allow you to repay only some of the interest or to switch from interest-only to roll up, giving you flexibility if your income drops in the future.
- The flexibility to downsize: Equity release loans normally become repayable when you die or if you move into a care home, but some lenders will allow you to repay your loan early, without penalty charges. If you’d like the possibility of downsizing in the future – which may be an option that you weren’t considering before but now want to keep on the table in the light of the current uncertainties – going for a product with an early repayment feature could be something to explore.
- Overpayment options: You could also consider a product with penalty-free overpayment options to enable you to pay back some or all of the loan early, as well as the interest. This might be something to consider if you’re struggling at the moment but anticipate your circumstances changing in the future, for example, if you expect to access some of your pension fund. You might also want to consider this form of flexibility if coronavirus has changed your immediate circumstances, meaning you need a cash injection now, but you anticipate being able to pay back more than the interest in the future, with the flexibility to pay only the interest or to allow the interest to roll up if things don’t work out as planned.
Coronavirus has created new uncertainties for almost all of us, but flexible equity release products give you the ability to plan for the unknown. Our expert equity release advisers would be delighted to talk you through the options to consider whether any of them might be a suitable solution for your personal circumstances.