Equity release might sound complex, but think of it as a financial tool specially designed for over-55s. It allows you to tap into the value of your home, releasing cash that you can use while still living there. Here’s how it works: You borrow against your home’s value, and you don’t need to pay back a penny until you either pass away or move into long-term care. The loan amount plus interest is then paid off when your home is sold.
Why Consider Equity Release?
Imagine wanting a holiday home in Spain or France, where you can relax and soak up the sun. Equity release could give you the financial boost needed for this dream, especially if other financing options are limited in retirement. However, it’s not as simple as it sounds—equity release has its own set of rules and considerations.
The Numbers Game
Government data from 2021-2022 shows that 40% of all second homes owned by UK residents are in foreign lands, mainly in Europe. Many use these homes as holiday getaways, a trend that has been stable for over a decade. Buying such a property outright can be challenging. For instance, properties in central Athens average at €2,073 per square meter, while in more remote Kastoria, it’s about €566 per square meter.
The Financial Mechanics
When buying property overseas, currency fluctuations can dramatically affect costs. For example, buying a €150,000 home in Greece one day could cost you £129,146, but just a day later, if the exchange rate dips, you might need £130,435—a £1,289 difference! To manage this, you can lock in an exchange rate with a forward contract, shielding you from unexpected costs due to rate changes.
Can Equity Release Help You Buy Abroad?
Andrew Morris, a senior advisor, explains that equity release can assist in purchasing a property abroad by funding a deposit or the full purchase. However, it’s not without restrictions. For one, you must keep your UK home insured and not leave it unoccupied for more than a few months each year. Plus, you need to clear any existing mortgage before tapping into equity release.
How Much Can You Borrow?
Recent trends show a decrease in the amount available through equity release. The Equity Release Council reported an average borrowing of just over £79,000 at the end of 2023, down from the previous year. This sum might not stretch to cover the cost of a home in pricier European locations, like Marseilles or the Netherlands, where average prices hover around €400,000.
Weighing Your Options
Equity release isn’t for everyone—it targets a specific group and has its costs and commitments, like any loan. It’s essential to consider all financial avenues, such as savings or other investments, which might offer a more cost-effective solution. Remember, owning a property abroad isn’t just about the purchase price. You’ll also need to consider ongoing costs like taxes, maintenance, and insurance, especially if you don’t have a local income.