The Situation:
Mr Pike has reached the end of his Interest Only Mortgage term. He was initially allowed 12 months to re-mortgage or sell the property to his mortgage lender. Despite several requests for an extension made by Mr Pike, they were all turned down. In addition to Mr Pike’s outstanding mortgage of £74,000 on which he pays £350 per month, he also has a credit debt of £22,000 where he pays £386 per month.
He only has his state and workplace pension as income. His financial adviser has confirmed he is not entitled to any other benefits, nor does he qualify for a conventional mortgage due to affordability. Mr Pike has completely exhausted his savings, leading to the increasing credit card debt to pay some general bills and essential purchases.
Mr Pike lives in a 4 bedroom house in Surrey, valued at £520,000. He is a prime example of ‘asset rich and cash poor’.
Potential Solution:
Mr Pike’s objectives are to clear his outstanding mortgage and pay off the credit cards to improve cash-flow. If possible, he would also like to have money on the side too in case his money levels are low again, as a safety net. His financial adviser has recently become qualified in equity release. The adviser is able to propose Mr Pike with a new solution that will tick all of his boxes. Firstly, they discussed all options before taking on another secured loan, such as ‘rent a room scheme’ or asking family for help. Mr Pike didn’t like the idea of a stranger living in his home, neither does he have anyone he can lean on financially.
The financial adviser recommended a drawdown lifetime mortgage with an initial release of £106,000 to meet his immediate needs, with an additional drawdown facility of £86,000 to withdraw further funds if and when he needs – without accumulating extra interest.
The adviser was able to show that with this solution, Mr Pike would be £734 per month better off. Mr Pike can now carry on his retirement without the worry and can stay in his home for the remainder of his life or until moves into long term care.