Equity release can help many to retire despite falling house prices

12 March 2009 / by Rachael Stiles

Pensioners who are struggling to keep up with living costs as the value of their investments dwindle, should not let falling house prices deter them from considering equity release.

According to Jon King, managing director of Hodge Lifetime, independent financial advisors (IFAs) should be tackling their clients' concerns about house prices by encouraging them to adopt a long-term view.

They do not have to put off retirement unnecessarily, he said, because there are equity release schemes that will provide guaranteed access to income from the value of their home, regardless of movement in house prices.

"When clients adopt a 15 year outlook, falling house prices are of little concern for equity release," he suggested.

Homeowners should look to the future, and IFAs should encourage them to consider how much their property could be worth when the market improves, Mr King stressed, and act now to boost their income when they need it the most.

"At a time when pension funds are restricted due to poor stock exchange performance and with the ABI reporting a 3.9% decline in the volume of pension annuity and drawdown premiums, equity release remains a real alternative for funding retirement now." he said.

Mr King explained that "Regardless of the current decline in house prices, clients must be made aware that it is the value of their property in future years, when the loan is repaid, that matters and not its present price assessment."

The equity release expert turned to history to illustrate how pensioners should look to the future when thinking about house prices, because in the 15 years between 1989 and 2004, when house prices experienced one of their sharpest falls in history, property still more than doubled in price.

"Over the long term there will always be times when house prices drop and the market re-adjusts to periods of exuberance. It occurred in the mid 1970s, early 1990s and is happening today," Mr King rationalised. "However, these periods of readjustment are often in themselves short lived and should therefore not be cited as a reason for clients to defer from the long-term benefits of equity release.

"A client’s home is an appreciating asset and realistically provides a means to help fund retirement now. Those clients who can take a long term view of the market are well placed to embrace equity release and make use of a product that can help many older homeowners."

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