Improve the value of your home with equity release
PUBLISHED: 09:52 19 July 2019
Peter Sharkey explains how undertaking most forms of property refurbishment adds value to your home.
One of my nieces is about to embark on her first property buying experience. It's an exciting prospect mixed, no doubt, with understandable apprehension.
Following university she moved back in with her parents and landed a good job, developments which have allowed her to accumulate most of the deposit for a modest, two-bedroomed flat; the Bank of Mum and Dad has also played a significant role.
She's heard most of the hoary property advice of the 'buy the worst house on the best road' variety, but worries that she may tie herself to a long-term mortgage as property values moved sideways for decades.
Chatting with her last weekend, I recounted a tale from the late 1980s when, with my wife and baby daughter, we moved from a small flat to our first house, increasing the size of our mortgage to what was for us an enormous £31,000. I'd started my first business only three years previously and now had a wife, baby and this colossal loan, factors which certainly concentrated the mind, especially as interest rates hovered around 12pc.
They would go even higher over the following two years, turning the financial side of life into a constant juggling act. By the early 1990s, rates had dropped below 7pc, giving homeowners a much-needed breather.
It didn't feel like it back in 1992-93, but this was the best possible time to own property. Between January 1992 and June 2019, average house prices rose by more than 4pc a year. This has not, of course, been a consistent, straight-line increase but a volatile, jagged rise, more akin to climbing a mountain with unexpectedly sharp peaks and often deeper troughs.
Historic precedent suggests that my niece's forthcoming property purchase will stand her in good stead. The UK suffers from a massive shortage of property and simple economics tell us that when supply is considerably lower than demand, prices tend to rise.
Many older readers will be at the opposite end of the property-owning experience to my niece and will have paid their mortgage off. Armed with their experience, a sizeable proportion of homeowners are now exploring a variety of ways in which they can enjoy a return from what has become their most valuable asset.
Rather than move home with all the upheaval that entails, many folks aged 55 and over prefer to upgrade and improve it, saving themselves a small fortune in stamp duty and time trying to find an ideal alternative.
Indeed, many people discover that transforming their current home to create the type of space they have always wanted enables them to stay where they are.
As property values have soared, no sector of society has benefited more than those aged 55 and over, most of whom have either cleared their mortgage or can see the finish line ahead.
People who have lived in the same place for a long time cherish the memories associated with their home - where children were raised amid laughter and good times enjoyed with family and friends, so why move?
It's a reasonable question, yet our circumstances change as grey hairs become more commonplace which often means that people wish to make small or larger-scale changes to their home, ostensibly to enhance their quality of life. The great advantage of upgrading is invariably a corresponding increase in their home's value.
This might sound like some form of unachievable pipe dream, but improving the home where you may have lived for decades is possible without having to eat into existing savings or other forms of income.
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There are several options. The nation's most popular form of equity release, known as a lifetime mortgage, allows homeowners aged 55 and over to release a tax-free lump sum from their property which they're then free to invest in home improvements (or anything else). As we have noted, undertaking most forms of property refurbishment invariably increases its value. Perhaps the greatest attraction of equity release is that, unlike a traditional mortgage, there are no monthly payments to make.
Just as getting your first mortgage was a big decision, so too is equity release. Releasing funds from your home could reduce the value of your estate and affect your entitlement to means-tested state benefits. It's for this reason that getting a personalised illustration from a qualified adviser is so important. That's the next step in seeing how the value locked in your home can be released and put to good use.
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THE WEEK IN NUMBERS
£ 2.3 million
Figures from the Department for the Environment show that the number of multi-load fly-tipping incidents rose by 43% between 2017-18. The cost of cleaning up selfish people's mess rose by £ 2.3 million, to £12.2 million as councils now regularly charge families to dump their waste at local tips.
In the space of just over a decade (2007-18), the number of criminals with more than 50 previous offences who were convicted but spared jail has more than trebled, from 1,299 to 3,916.
The ONS reports that wages are currently rising at their fastest rate in 11 years. Average pay growth jumped to 3.6% in the three months to May as the lowest unemployment level in 44 years resulted in pay rising well beyond the rate of inflation.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.