Equity release may help over-55s in post-Covid recession
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The coronavirus outbreak is expected to force UK finances into a troubling position – but homeowners could be helped through equity release, says finance expert Peter Sharkey.
Having read his outstanding book of the same title several years ago, I took the opportunity to watch the opening episode of Andrew Marr’s History of Modern Britain this week, which dealt with the immediate post-war period between 1945 and 1951.
As we saw during the recent 75th anniversary of the VE celebrations, it was initially a time of great hope and optimism. Looking back, it may appear incredible that three months after an ultimately victorious World War II campaign, Winston Churchill was deposed and Clement Attlee elected Prime Minister in a landslide victory, but it’s clear that following almost six years of war, people were desperate for political and social change.
And despite thousands of bombed-out buildings, post-war rationing, genuine poverty, austerity on a scale that would provoke a revolution nowadays and little in the way of social welfare, an almost tangible sense of cheerfulness and positivity prevailed. Yet, as Marr showed, within two years Britons’ inherent sunniness had dimmed.
By the winter of 1947, when many of the coldest weeks in more than 300 years were recorded, the country was on its knees. With the surrounding seas frozen, a civil servant, Otto Clarke (father of the later New Labour minister Charles), drew up plans for a ‘famine food programme’ which included taking children out of school to help in the fields.
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Bread rationing was tightened and people froze, yet the nation’s finances were so fragile it couldn’t afford to buy wheat; this was, perhaps, the lowest point in Britain’s economic history.
Earlier this week, following the disclosure of a review prepared for the Chancellor Rishi Sunak, it became apparent that Britain’s finances are in their weakest state since those dark days of 1947.
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The review’s numbers are staggering.
Remember Mr Sunak’s debut Budget in March when he forecast an annual deficit of £55 billion? By the middle of last week, just two months later, that figure had risen to £337 billion. This, however, is an optimistic assessment: the deficit could easily swell to £516 billion and soar to £1.19 trillion by 2025. To service such debt, economists believe the government will need to raise taxes or make annual spending cuts of up to £90 billion.
There is some saving grace: such is the impact of Covid-19 that just about every nation on earth is in the same boat, although they too will soon have to start picking up their own chunky tabs.
Of course, none of the emergency measures introduced by the government such as furlough schemes and grants to small businesses were ever going to be gestures of magnanimity: they all have to be paid for, because, as the old Yorkshire saying reminds us: “you don’t get owt for nowt”.
But where will this money come from?
Increasing the basic rate of income tax by 1pc would raise around £5 billion a year, though clearly this would need to be supplemented, probably through across-the-board increases in VAT, National Insurance Contributions (another name for income tax), Corporation Tax and Inheritance Tax.
However, the Treasury also has several more tax-related ‘levers’ it can pull; this includes reducing pension tax relief and, most damagingly of all for older folks: scrapping the guaranteed triple lock on pensions.
At present, the state pension increases each year by the highest of annual earnings growth, price inflation or 2.5pc, but a future ‘double lock’, based only on increases in earnings or inflation, would save an estimated £20 billion a year. People who are already retired or are within a few years of retirement could be affected by a change of this nature.
Earlier this week, one equity release provider revealed that since 2016, it had witnessed huge growth in the number of 55 year-olds seeking equity release advice – well over 300pc. It’s reasonable to assume that this figure will continue to grow as older homeowners exercise the opportunity to realise a proportion of the wealth built up in their property, usually over many years.
The appeal of equity release is likely to be further enhanced once many homeowners consider how delicate their finances appeared during the lockdown and they discover that the money released from their property is completely tax-free.
Britain eventually recovered from the immediate post-war period, as we will from the impact of Covid-19, but we’re in for a long, costly haul.
With this in mind, homeowners aged 55 and above may wish to consider mulling over equity release, a potentially tax-free option not available in 1951.
What do you think about equity release? Please email us at: firstname.lastname@example.org to let us know.
Equity release: your questions
In light of the current crisis, readers may wish to learn more about equity release. You can read hundreds of blogs and articles dealing with the subject on the Moneymapp website, including one of the UK’s best equity release blogs at www.moneymapp.com/blog
In addition, there’s a wealth of information to be discovered at www.moneymapp.com/equity-release .
Alternatively, if you have any queries regarding equity release, you may email your questions to: email@example.com
Please note, Moneymapp.com cannot advise readers on whether equity release is suitable for them, but it can introduce you to qualified professional experts who can answer your specific equity release questions. When emailing, please provide a daytime telephone number.
For further financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.