Your Questions

September 29, 2011 5:15 pm

We need to release cash to downsize

I am 67 and my husband is 71. We own our home in southern Scotland but want to downsize and move to our second property, which we inherited several years ago. This second property isn’t quite ready to move into and will need major renovations, costing about £50,000. We are very keen to get going but don’t have the cash to start the renovations as we are “asset rich, cash poor”. We could sell the family home, valued at £230,000-£250,000, but this could take a while in the current market. We don’t need all the cash at once to start the renovations but could do it in stages. We anticipate repaying all the debt once our current home is sold. Can you please advise on the best options for raising bridging finance? Should we be considering equity release? I am still working part-time while my husband has retired. We have three sons and two grandchildren.

There are several options that may be available to provide you with the capital to renovate your second property, says Saga Personal Finance, the specialist adviser for the over-50s. They include remortgaging, taking out a bridging loan and equity release.

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If you have an existing mortgage, the simplest option would be to increase borrowing against your first home. This may be easier to facilitate and interest rates may be more competitive. Speak to your existing lender to find out if this is an option, but bear in mind there are likely to be set-up costs involved and the mortgage would require monthly repayments, which would need to be met from income.

Another option to consider is a bridging loan, which will usually provide quick access to the funds and may not require regular monthly repayments. Some people find these loans a useful way of raising funds to renovate a property that an ordinary mortgage lender wouldn’t look at. You may be able to borrow as much as 75 per cent of the property’s value if there’s no other mortgage secured on it.

However, the downsides of bridging loans are that they are usually only available for up to 12 months, and charge high interest rates and set-up costs. If that doesn’t faze you, then bridging finance can be obtained from high street lenders or bridging loan specialists.

If you are still working because your pension income is insufficient, these options may be less suitable for you – and a better alternative may be equity release.

Equity-release plans allow you to withdraw cash from your property in exchange for a debt secured against it. Interest is added to the debt and accrues on a compound basis, to be repaid only when the property is eventually sold – usually negating the requirement for regular repayments. It is possible to agree a maximum amount to borrow, then draw down funds only as and when you need them.

As interest is only charged on the money you have actually drawn down, you are not borrowing money or paying interest on funds until you need them, making it an efficient method of borrowing.

But equity-release plans are designed to be held for the longer term, whereas your requirement is for a short-term solution. If you opt to repay the debt early, equity-release plans may have an early repayment charge – potentially making them an expensive short-term option.

In addition, you mention you have three adult children. When considering equity release, it is always advisable to discuss your plans with your family as this option will reduce the value of your estate and affect your ability to leave an inheritance to your family.

If you have a question that you would like answered by an expert email us at money@ft.com

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