The assumption is often made that when people reach retirement age and they are to move home, it will be to downsize to a smaller and typically lower value property.
However, for many homeowners in later life moving home is a lifestyle choice, for example, moving nearer to relatives or to a bungalow near the sea.
Often this involves moving to a more expensive property. Many potential customers would like to make this lifestyle change, but do not have sufficient capital to make the trade up.
For these clients, taking out a home reversion simultaneously with purchasing a new property could be the answer.
Let us take the example of a 70-year-old male who we will call Ron Smith. He owns a three-bedroom semi-detached house in the Gosforth area of Newcastle, worth £180,000.
The house was a good family home as it was close to the children’s school and local amenities, and offered an easy commute into work.
Now that the children have left home, Ron has retired with more time to indulge his love of gardening and long walks by the sea. He would like to move to a detached bungalow in Tynemouth with a large garden, on the market for £340,000.
However, Ron does not have the money to fund the £160,000 shortfall between the sale price of his current home and the bungalow in Tynemouth.
In addition to the shortfall, he needs an additional £4,000 to put towards moving costs, so a total of £164,000 is required.
If Ron took out a 100% Bridgewater reversion on the new property, worth £340,000, he could release £164,000 at completion.
This, combined with the sale proceeds from his current home, would enable him to purchase his ideal home and leave £4,000 to help with moving costs.
Naturally, if Ron decided to move to a slightly less expensive property, he would retain an element of equity which would guarantee an inheritance for his estate.
This might not be seen as a common usage for equity release, however it is on the rise.
Bridgewater has seen a three-fold increase over the last year in the number of clients who are using a reversion to fund such an upsize.
Therefore, there are a number of key areas specialist equity release advisers can focus on:
- Many customers would like to trade down, however there are no cheaper properties to purchase and they do not fit their lifestyle wants and needs
- There is an increasing trend of retired parents moving to live nearer their more affluent children in more expensive areas
- Many older customers do not want to take on further debt
- Affordability checks will prevent many clients who live off pension income only to access further mortgage funds
- There are no credit checks or credit scoring when taking out a home reversion plan
- All estate agents (regardless of who they introduce standard mortgages to) should be made aware of this option which allows buyers in retirement to purchase above their level of available cash
- When taking a home reversion plan, consumers are protected by FSA regulation for the advice and product provider. There are also the SHIP guarantee and property law to ensure that the customer has security of tenure for life
This could certainly be a potential solution for an increasing number of those in retirement who want to move.
In addition, Bridgewater recommends that any estate agent or mortgage broker, with customers over the age of 65 wanting to move house, make sure they have a referral relationship with a specialist equity release adviser, as reversions are not available through advisers who do not have the relevant qualifications and FSA permissions.
