Home improvements: equity schemes could be the solution

According to several recent news reports, many older people do not have the money to make vital improvements to their homes, or believe that they don’t. Equity release could be the ideal solution for these people.

Equity release means taking out a mortgage for a lump sum in return for security against the homeowner’s property. This means that there are no monthly repayments, and that the loan is awarded at a fixed rate. The debt plus interest is repaid when the property is sold.

According to Andrew Goodsell, the executive chairman for Saga Group, this would be the ideal solution for many homeowners. However, the high fees providers have been charging upfront tended to limit the availability of this option, particularly to older homeowners.

Mr Goodsell however reported that Saga Group’s Personal Finance scheme in conjunction with Just Retirement will provide solutions to help people access their money.

According to a report in CityWire, the Saga scheme provides a borrowing facility that allows the borrower to draw only the amount of money needed at a particular time. This contrasts with more traditional equity release schemes, which provided a large lump sum at the outset of the loan agreement, which meant more interest and higher debt.

What makes the scheme particularly useful for home improvements when these are needed is the fact that borrowers can draw an initial amount, usually between £10,000 and £15,000, with subsequent drawings at a later time. According to the report, these usually amount up to £5,000 at a time.

According to Dean Mirfin, a broker at Key Retirement Solutions, a 65-year-old homeowner can draw up to 25 to 33 per cent of the value of his or her property and bay 6.5 to 7 per cent of interest.

The maximum amount that can be borrowed increases with age, which makes it ideal to help with necessities, such as home improvements, that are otherwise out of reach for older people.

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