Equity release has become an increasingly popular option for homeowners over 55 who want to unlock cash tied up in their property. Whether you’re looking to supplement your retirement income, help family members financially, or fund home improvements, equity release could provide the solution. However, it is essential to understand how it works, the pros and cons and whether it suits your circumstances.
What is Equity Release?
Equity release allows homeowners aged 55 and over to access a portion of their property’s value as a tax-free lump sum or regular payments while continuing to live in their home. The two main types of equity release are:
Lifetime Mortgage: The most common form, where you take out a loan secured against your home. Interest accrues over time, and the loan is repaid when you pass away or move into long-term care.
Home Reversion Scheme: You sell part or all of your home to a provider in exchange for a lump sum or regular payments while retaining the right to live in the property rent-free.
Advantages of Equity Release
- Access to Tax-Free Cash – provides a lump sum or income without selling your home.
- No monthly repayments required – with a lifetime mortgage, repayment is only due when you move into care or pass away.
- Retain home ownership (Lifetime Mortgage) – unlike selling outright, you still own your home and benefit from any future property value increases.
- Flexibility – many plans offer options like inheritance protection and early repayment.
- No negative equity guarantee – most regulated plans ensure you’ll never owe more than your home’s value.
Disadvantages of Equity Release
- Interest can compound quickly – if interest rolls up over time, the amount owed can grow significantly.
- Reduces inheritance – as the loan and interest must be repaid from your estate, it may leave less for beneficiaries.
- Impact on benefits – receiving a lump sum could affect eligibility for means-tested benefits like Pension Credit.
- Early repayment charges – If you wish to repay the loan early, you may face high fees.
Is Equity Release right for you?
Equity release may be a suitable option if:
- You need extra income in retirement and have no desire to downsize.
- You have no dependents relying on inheritance or are comfortable leaving a reduced estate.
- You want to stay in your home while accessing its value.
- You have explored alternative options, such as downsizing or using savings, and found them unsuitable.
Equity release can be a valuable financial tool, but it’s not for everyone. Seeking advice from a financial adviser, like us, is crucial to understanding the long-term impact on your estate and finances.
If you are considering equity release, speaking with Gary or Suzanne, will help you determine whether it aligns with your needs and explore the best products available.