The rise of living costs has caused the older generation to turn to unsecured lending through credit cards, personal loans, and overdrafts — but is there hidden wealth within a testator’s estate that could omit financial burdens later in life?
Recent reports have released the findings of a survey carried out by the Equity Release Council, who have subsequently advised homeowners over the age of 65 should consider equity release. The Pensioner Debt Index looked into the lending and spending habits of older people, and has found it is increasingly common for consumers to become burdened by unsecured debts in order to cope with living expenses after they retire.
According to the report, the average unsecured debt for consumers over the age of 65 in December last year was £1,546 — a 16% annual increase.
That said, homeowners within this age bracket are said to have accumulated an average of £192,506 of equity in their home, with nearly 80% of respondents being completely clear of mortgage debt. So why aren’t testators considering this when writing their will and planning for retirement, as it could be used to their and their family’s advantage?
According to the research, for those with a mortgage still outstanding, 63% have capital and interest repayments, with the remaining 37% having interest only.
The Equity Release Council state the typical equity release loans offer loan to value (LTV) at 20%. Therefore, with an average house price of £249,568, an estimated £50,000 could be withdrawn — which is reportedly double the size of the average pension fund.
Although equity release reduces the overall bequeathment, having debt secured within a mortgage is thought to be safer on death overall than unsecured loans, as the repayments can be cleared on selling the property.
Chairman of the Equity Release Council, Nigel Waterson, states the surge in house prices has led to the older generation accumulating a personal property fund, which he deems as being potentially life changing financially. As a result of this accumulation, this should allow for secure lending within this generation, giving more confidence to consumers.
Wills and probate professionals are urged by the Equity Release Council to consider equity release as a form of retirement funding, and focus on quality of life for their clients.
Waterson continues by mentioning the guidance guarantee alongside the pension reform, will encourage consumers to actively consider how they will fund their retirement.
What would you consider the best form of investment to fund retirement — what do you advise your clients?
