Equity Release with no inheritance requirement

older_and_no_wiser

I have a hypothetical scenario which would be good to get opinions on.

Let's say I retire at age 60 with no mortgage and the following:

£500k SIPP (DC)
£100k in stock ISAs
£80k in cash

Full NI contributions for full SP at 67

The investments are 90% equities.

My annual living expenses are approx £17k a year. I am single with no family and no requirement to leave any inheritance for anyone.

At some point in my retirement I would like to buy a motorhome for approx £50k to travel the UK and Europe with my girlfriend.

Of course, I could cash in part of my savings and/or investments to do this tax free. However, if the market is mid crash/dip/correction, then there's a risk I sell at a bad time. An option I may have is Equity Release on my property which hypothetically is worth £200k at that point with no mortgage outstanding. Could I do this and delay repayments until my death with the repayment coming out of the sale of the property after death? Is there any downside with this based on the fact I have no requirement to leave any inheritance to family?

theoretica

A potential downside is it can complicate matters if you want to sell your property and buy a different one.

older_and_no_wiser

Yes good point. Could I just repay the release mortgage before selling though (subject to interest of course)?

tebbins

What you could do is not fully repay your mortgage, switch to an interest-only one, and then extend it to buy the motorhome as and when and repay it out of your investments over the next 10 years or so. However if you are already retired your mortgage provider may not allow this.
From 67 onwards you only need ~£7.7kpa, which the dividends alone from your SIPP/ISAs should be more than capable of covering (at least at current equity/bond yields assuming you're invested in something like a global multi-asset fund). From 60-67 you only need ~£120k (17*7). So it seems you're pretty sorted.

maxsteam

older_and_no_wiser said:

An option I may have is Equity Release on my property which hypothetically is worth £200k at that point with no mortgage outstanding. Could I do this and delay repayments until my death with the repayment coming out of the sale of the property after death? Is there any downside with this based on the fact I have no requirement to leave any inheritance to family?

Yes. There's a downside. Equity release is a relatively expensive way to obtain funds. It's generally only used when there are no other options.

While you say there is no requirement to leave an inheritance, you should certainly record your preferences in a will.

GDB2222

I'm lost about why this question is being asked?

Income requirement is £17k net.

The 600k invested in equities should produce around 3%, ie £18k.

Plus, the state pension is about £9k.

Allowing for tax, that should provide £17k net, with quite a bit left over.

There's also £100k cash to buy a camper van, if desired.

What's the question?

older_and_no_wiser

GDB2222 said:

I'm lost about why this question is being asked?

What's the question?

It's a hypothetical question to evaluate whether in theory (in the financial situation I have outlined) it would be a viable option to use equity release to release 50k if at that point the markets are crashing in a major way and I don't want to crystallize a big loss in investments. 

As you say, the cash could be used to make the purchase, but then I would want to replace that cash for living expenses by cashing in some investments anyway 

GDB2222

older_and_no_wiser said:

GDB2222 said:

I'm lost about why this question is being asked?

What's the question?

It's a hypothetical question to evaluate whether in theory (in the financial situation I have outlined) it would be a viable option to use equity release to release 50k if at that point the markets are crashing in a major way and I don't want to crystallize a big loss in investments. 

As you say, the cash could be used to make the purchase, but then I would want to replace that cash for living expenses by cashing in some investments anyway 

But, you'll have plenty of money coming in to cover your anticipated living expenses. You'll need some cash to act as a buffer, but £50k seems plenty. So, you can spend half your cash on a campervan, and still have an adequate cash buffer left over.

Equity release is just borrowing, dressed up, and I don't think you need to do that to fund the camper, as you have quite a bit of cash. Historically, the income from equities has been far more stable than the market value.

Albermarle

It's a hypothetical question to evaluate whether in theory (in the financial situation I have outlined) it would be a viable option to use equity release to release 50k if at that point the markets are crashing in a major way and I don't want to crystallize a big loss in investments. 

It is quite possible that house prices will go down as well, if there are big issues in the financial markets .

solidpro

How old are you now?

older_and_no_wiser

I'm 53 now