We look at some of the typical reasons for borrowing and ways of raising a lump sum when over 55, and suggest potential sources of advice.
Funding unexpected financial needs
2020. It’s been a challenging year, and it isn’t over yet. Double Lockdowns, quarantines, tiers, furloughing, travel restrictions, and internal borders… 12 months ago, all this would have been seen like something from a dystopian novel, but now they’re simply things we all grapple with.
The impact of COVID-19 on the economy has been profound: at the time of writing, whole industries have been shut down. And, while there appears to be cause for general optimism pending the likely official approval and roll-out of three vaccines, here in the UK we are also facing possible further disruption from a potential No Deal Brexit.
In these particularly uncertain times, there can be many reasons for and drivers behind raising funds. As a new financial services brand created to provide the over 55s with greater options for raising a lump sum, we’ve had requests for all sorts of reasons. Partly this is because many people aged 55-70 are finding that just as they hit their peak of earnings and/or savings, their options for borrowing can change dramatically. All this, at a time when they may be called upon to act as ‘The Bank of Mum & Dad’ for their grown-up children, as well as potentially having to look after frail elderly parents.
Reasons for raising finance
As we said, there can be many reasons for borrowing in later life, ranging from necessity to altruism, and from the traditional to the more unusual. For example, if your elderly parents need help around the home, you may wish to upgrade their home with the latest in mobility modifications, or you might want to bring them much closer to home in a purpose-built Granny Flat on your property. You may have adult children needing help with expenses as part of COVID fall out, or you may wish to help them with a deposit to move out from renting and onto the housing ladder. Perhaps you’ve started a family in later life and need to pay off school or university fees. Or, you may have your own plans in retirement to fulfil, such as renovating your home and garden now that we’re all spending so much more time indoors. Or you may simply wish to tick off a ‘Bucket List’ experience or buy a classic set of new wheels to go exploring in when lockdown ends.
Approaches to take
No matter the reason you’re seeking to raise a lump sum, the question is, what’s the best way of going about it? If you’re thinking about Equity Release, it’s a lifetime decision that requires expert financial and legal advice. You’ll need to be comfortable with reducing the value of your estate, potentially changing your entitlement to means-tested benefits, and, depending on the deal chosen, possibly making interest payments for life.
If ‘spending the inheritance’ doesn’t appeal to you, and you have a flexible drawdown pension, then is it time to take a lump sum? If you’ve already used up your tax-free allowance, you could be taxed at your marginal rate. If you want to transfer from a final salary pension scheme, you’ll need to take financial advice, as you’ll be giving up a form of guaranteed income for life.
What about a personal loan? If you’re able to get a fixed-term loan that’s not secured on your home, then you may wish to look into this form of borrowing. Once you’re over 55, arranging a loan for larger amounts is no longer as difficult as it was, as new options such as the Over 55s Unsecured Loan offered by free2 overcomes over the conditions related to a borrower’s age, salary and forms of security imposed by other lenders.
There’s always the option to release investments, sell assets or raid the rainy-day savings fund. But you need to be sure of your timing, as once assets like these are spent, they can take years to build back up again, if that’s even possible.
If you visit our Learn & Discover page, you’ll find a series of Fact Sheets including costings for potential purchases. While our Loan and Equity Release calculators give you an idea of the costs of borrowing.
Free2 Limited (trading as free2) is an Appointed Representative of RS Consumer Finance Limited (RSCF) which is authorised and regulated by the Financial Conduct Authority (the FCA). free2 is a credit broker, not a lender, and will only offer loans from RSCF – an offer of credit is subject to status and affordability. Example Loan: 60-year-old non-smoker, £30,000 over 10 years with fixed monthly payments of £344.56, interest rate 6.73% and an APR of 6.97%. Terms & Conditions apply.
Customers wishing to use the free2 Equity Release Advice Service, once registered, will be introduced to partners Money and Advice Planning (MAP). The free2 Equity Release Advice Service provides a free initial consultation followed by an advisory meeting, for which a fee of £595 is charged on completion of a successful application.