It’s not your fault!
I know what you are thinking, why has it come to this when I think I did all the right things?
You worked hard, bought your own house, with a mortgage that you paid off, you, or your spouse, probably had a job with a pension that provides you with a pretty decent income for life and you had a tax free lump sum as well from the pension that should have provided a bit extra for rainy days. So how come you have run out of money and haven’t really got enough to maintain the house, put decent food on the table and replace the car etc?
Well, as I said at the beginning, it’s not your fault. You did do all the right things it’s just that the world has kicked you in the teeth at the wrong time.
Interest rates have fallen like a stone so whilst the lump sum you had used to provide for the odd extra, it not only failed to do that but you needed to dip into it from time to time to supplement your income.
So over the past few years your standard of living has gradually reduced as you cut back on the quality of food you buy, postpone doing things in the home and garden, don’t go out for meals and generally fall into an existence rather than enjoying life.
But you are not on your own as was highlighted by a survey made by Aviva in July that shows that over 55’s have very little to spend (£27 per month) as disposable income.
This means that when you look at all of your assets, it becomes clear that the one which has the most ability to provide additional income is your house.
Most people don’t want to sell their house and purchase a cheaper one or even rent so the only option is to tap into the equity that is in the property using Equity Release.
I know, your first thought was that the Government should do something about it, there should be a scheme that helps people when they get into difficulties and money runs out.
Well there isn’t and it hasn’t been because it crept up on politicians without them seeing it coming. It’s because successive Governments for generations have simply kicked the can down the road because it’s too sensitive. Even now the current coalition government are too frightened to make concrete proposals because those proposals would not be liked and it could cost them their jobs come the next election.
So how can you come to terms with the shock that you have just discovered? Well it is quite simple really but you need to look back about 50 years to see why.
In 1960, the average house price was £2,507. Today, it stands at £233,203. That means it has grown by over 93 times in 52 years.
So did you know that inflation would make your house value rise so much when you decided to buy? No you didn’t. In fact, up to 1960, inflation had barely raised its ugly head for nearly 20 years. You bought your house because it was less expensive than renting.
So how much did you actually pay for the £2,500 property that is not only going to fund your shortfall in income but should still provide your children with a substantial sum after you have both departed this mortal coil? Probably £6,267 over a 25 year period. Don’t get me wrong, this was a lot of money in those days and a fair proportion of your hard earned money went on paying the mortgage.
The difference between what you actually paid for it and its current value? £226,936.
So it’s not you that has provided the vast majority of the money that you are tapping into, it’s that nasty animal called inflation.
I know it’s not comfortable to see the value of an asset that you have probably sub-consciously thought of as being your children’s inheritance reducing in value, but when you realise that the current face value of that asset is mainly derived from inflation, I hope this will help you come to terms with it.
By the way, if you want advice on the best way of organising equity release, follow this link. Please don’t take the first (or even the 4th offer) without seeing all of them. That is what we do; without exception.