Is Your Equity Tied Up?

The latest findings from Prudential’s Equity Release Index, based on an analysis of data from the ONS Family Spending Report (2006), Registers of Scotland and GfK NOP (2007), reveal that, despite falling house prices, Scottish homeowners aged 65 and over still have £41.8 billion of equity in their property.

The significant amount of property equity owned by Scottish over-65s contrasts with the current squeeze on other sources of retirement income in current volatile stock market and economic conditions, which has seen rates on annuities and income drawdown products fall.  Individuals buying guaranteed annuities, for example, have seen rates fall 8 per cent in recent months and Prudential believes this fall reinforces the need for pensioners to look at all potential sources of income.

Property equity can be considered as a source of retirement funds, especially against a backdrop of low interest rates and equity price falls of around 30 per cent in the past two years which have hit pensioners’ non-pensions savings.

The Prudential Property Equity Index shows Scottish pensioners have seen the value of the equity in their homes fall by 6.6 per cent in the past year, compared to 10.2 per cent in England and Wales.   House prices in Scotland actually increased in the first three quarters of 2008 while those in England and Wales began to fall from June of that year.

Prudential’s analysis shows the value of property equity belonging to over-65 homeowners actually increased by £2.95 billion from the beginning of the first quarter of 2008 to the end of the third quarter of 2008, but then in the last three months of the year until the end of the first quarter of 2009, it fell by £5.91 billion.

Keith Haggart, Director of Lifetime Mortgages, at Prudential said, “Every homeowner is being affected by falling property prices but it’s important to remember that the over-65s in Scotland who own their homes will have benefited from rising property prices. Even in the current market the vast majority of retired homeowners who have paid off their mortgage and owned their home for some time still have considerable wealth tied up in their properties.

“They will in many cases not want to move home and in the current market the option of downsizing and raising money is less attractive when prices are depressed and houses take longer to sell.

“Equity release has an important role to play in providing funds for retirement particularly when other sources are under pressure.”

Equity release schemes can be an excellent way to help retired homeowners secure additional retirement funds, and any provider who is Safe Home Income Plan (SHIP) registered provides a no-negative equity guarantee as well as guaranteeing that the mortgage interest rate is fixed for the term of the loan.

Product information

Pru’s lifetime mortgage equity release proposition is available to homeowners aged between 55 and 84* and has a range of features that are designed to provide flexibility and closely meet the needs of customers in this growing market.  Pru’s lifetime mortgage addresses criticisms that some of the products currently available across the market are inflexible and do not take account of changes in lifestyles.

For example, unlike most other equity release plans, it enables homeowners to guarantee an inheritance of either 10 or 20 per cent of their existing house value without affecting the amount of equity they can release through the plan.

The drawdown plan allows them to release an initial sum, and then further funds (minimum of £3,000 applies) as required with the maximum amount to be released going up by 1 per cent each year (subject to limits).  Alternatively, they can just release one single lump sum at the outset.

* For joint applications the youngest applicant must be aged between 55 and 84.

Full consumer product information can be found at www.pru.co.uk.