Retirement Mortgages

Older people are now finding their pension schemes are not funding their retirement or that they are unable to manage on a state pension. Therefore they turn, to probably their greatest asset, their property and look into equity release.

Home reversion is that part or all of a property can be sold but owners can live in the property rent free for the rest of their lives. By living in the property and not having to pay rent means that the full share amount is not paid.

The scheme is aimed at the over 55’s but because of the time lapse before the property can be sold the younger the owner the less is paid. If 100% is sold nothing will be paid out when the property is sold even if the value has considerably increased i.e. if 50% only is sold 50% would go to the family when the sale goes through.

With a lifetime mortgage the owners keep the house but take out a loan secured against the property. They have the choice to pay the interest as normal or pay it all in one sum when the property is sold. Again age is the factor as to how much loan will be offered. Some lenders cap the loan at 15% for 55yr olds. The maximum is usually between 35% and 45%.

With a lifetime mortgage if no interest is paid off the loan until the property is sold this could mean that the entire value of the property is equal to the amount owed, leaving nothing to be passed to the family. Most lenders now offer schemes whereby if the amount accrued is more than the property value no money will be payable by the family.

Since April both lifetime mortgages and home reversions fall under the regulations of the FSA these require companies selling these products to make sure that the owners fully understand all the implications before signing any paperwork.

Pensions 'a worldwide worry'

It seems that pensions are not just a worry for Britons but for adults across the world, with 60 per cent of the world's pre-retired adults concerned that they have not saved enough for retirement, a new study has discovered.

According to an annual study carried out by Henley Centre Headlight Vision for Aviva, questioning 50,000 people from 23 countries, 48 per cent of retired people regret not doing something earlier to provide for their retirement.

Half of all pre-retirees, meanwhile, expect to work into old age in order to fund their future.

Group chief executive at Aviva Richard Harvey said: "Our research shows that the pensions black hole is not just a UK-specific issue but an area of global concern.

"Broadly, the world's pre-retired population seems to have resigned itself to the fact that the term 'retirement age' may not apply to a specific age and will become increasingly ambiguous."

The survey also revealed that just 30 per cent of Britons are currently saving for their retirement, compared to nearly half of Americans and three-quarters of those from Hong Kong.

Aviva is advising consumers of six steps to take to help them make informed decisions about their retirement, including making a plan for the future, getting to know your own views about money and taking risks, saving little and often, investing for the future, looking after finances and speaking to a financial adviser.

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