Equity Release is an overall term to represent a number of plans that can help you release money built up in your home which you can use to fund your retirement, make home improvements, or gift to family, without having to sell up. However, there are some warnings that customers should be made aware of, such as how this type of plan may affect other financial benefits you may be entitled to.
No, your state pension is unaffected by any Equity Release plan you choose to take out. This is due to the fact that the state pension is not means tested. It is also not taxable, thereby excusing you from tax payments. Your state pension amount is based on how much you have contributed to National Insurance throughout your life, and Equity Release does not affect it. It is worth noting, however, if you receive a means-tested benefit, your claim amount may be affected depending on the savings you have and therefore if you release equity.
Using an Equity Release payment to fund the cost of care is a popular reason many homeowners choose to take out a plan. You could potentially release a lump sum from your home which could then be used to make adaptations in the home, or pay for a care funding plan which will make regular payments to your care provider. With Equity Release, you will be able to stay in your home and only need to repay the loan if you have moved permanently into a nursing or care home.
An Equity Release plan, such as a Lifetime Mortgage or Home Reversion, can increase the amount of money you have saved, which in itself can take you over the threshold for certain means-tested benefits. For example, Universal Credit, council tax reductions, and/or Pension Credit could be affected by the fact that you now have more money in your bank account. The savings thresholds for these benefits are subject to change, however your Bower adviser will be able to check this for you.
There are some reasons why a person may be refused Equity Release, including how they intend to spend the money. Responsible lending and advice obligations mean that providers will not lend to you if you are planning to use the money for anything that is considered high-risk, such as cryptocurrency or other investments. You may also be rejected if you are in an undischarged bankruptcy or an individual voluntary arrangement (IVA). There are also rare occasions when the property itself will be rejected as it is not suitable for the lender; this might be down to it being a non-standard construction, foam insulation being used and any property restrictions or commercial use.
