The Adam Smith Institute believes that Stamp Duty Land Tax should be scrapped. Amongst their reasons is the view that the prospect of paying stamp duty on a smaller home acts as a disincentive to older people wishing to downsize. For example, stamp duty adds another £2,500 to the cost of buying a retirement property priced at £250,000; that is in addition to solicitor’s fees, surveys, valuations and removal costs. (Figures differ under Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.)
Those looking to raise cash to bolster retirement income are increasingly turning to equity release. It represents a way of accessing some of the value tied up in a property while avoiding the costs and upheaval of downsizing. Although there are set-up fees, most costs are delayed until you die or go into permanent residential care.
It’s important to remember that in most cases, equity release means that the loan you take out against the equity tied up in your property will increase over time as interest is rolled up. When you die, the property will be sold and the loan repaid. Although interest rates on equity release plans are higher than on a conventional mortgage, lower interest rates over the last few years have made equity release more attractive to many.
Remember to discuss equity release with your family as it will impact on the amount that they are likely to inherit.
Equity release is increasingly coming to the aid of those approaching retirement with an interest-only mortgage without the funds to pay back the capital on maturity and their retirement income insufficient to cover ongoing interest costs. Whilst they may not have paid off any capital, they may have built up equity, offering them a lifeline allowing them to stay in their home.
A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Equity release may require a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration.