Q: I have a client who is looking to release equity on their property but may also consider sheltered accommodation in future, what options are on the market?
A: We know equity release is used for a multitude of reasons: paying of existing debts, financially supporting loved ones and topping up one’s retirement income. Housing equity is being used to help to face the challenges of supporting our ageing population and an area that looks set to continue to grow is long-term care.
With the publication of the Dilnot Report and the long awaited Social Care White Paper the long-term care and equity release has never been more closely intertwined. The number of people that take out equity release to fund their long-term care is relatively low, but steadily increasing.
In fact, since the introduction of the cap on residential care fees much has been made about the fact that equity release could be the product that could help retirees to bridge the gap.
However this debate excludes the growing section of society who move into sheltered accommodation in retirement. Age UK figures estimate that there are around 533,000 sheltered and retirement housing units in England. Whilst they may seem like natural bedfellows, the equity release market remains rather uneasy with the sheltered housing market due to the challenges valuing these properties. In fact, some firms no longer offer loans on sheltered accommodation.
This is a concern primarily for existing customers who may wish to port their loan. When taking out an equity release mortgage it is vitally important to think through what options you want to be available to you in the future. And, if you think you might want to move into sheltered accommodation in future pick a lender who has a benign policy on this.
If you are looking to place a loan on a sheltered property do shop around to make sure the customer can get what they need. Considerations include whether, and by how much, the LTV or property value would be reduced for clients in sheltered accommodation as this would impact on how much they would be able to release.
If equity release is to be considered as an additional financial planning tool, it is important that advisers take care to shelter clients from this particular storm by making sure the product they use offers their clients the flexibility they may require in later retirement.
