Equity Release can be used for a variety of purposes, from home improvements to supplementing your retirement income, and clearing any existing debts including repaying a mortgage with your bank or building society.
Our equity release specialists have outlined at some of the common reasons people choose to release equity from their home and why it can be an effective tool for achieving certain financial goals.
Understanding Equity Release
What is Equity Release?
Equity release is a financial product that allows homeowners to access the equity they’ve built up in their home as cash. It’s a way to release a lump sum or regular income from the value of your property, without having to move out. Equity release can be used for various purposes, such as home improvements, paying off debts, or supplementing your pension.
Equity release is available to homeowners aged 55 and over, and there are two main types: lifetime mortgages and home reversion plans. Lifetime mortgages allow you to borrow money using the value of your home as security, while home reversion plans involve selling all or part of your home to a provider for less than the market value.
It’s essential to understand that equity release can have implications on your financial situation, including reducing your inheritance and affecting your welfare benefits. Therefore, it’s crucial to seek specialist equity release advice from a qualified financial adviser before making any decisions.
Top equity release uses:
When it comes to spending your equity release, customers often have an idea of how they wish to use the funds released. From paying off existing debts, to supplementing your income for a more comfortable retirement, there are a number of ways you could use your equity release funds.
1. Paying off existing debts
As many people enter retirement with outstanding debts and loans, they can soon find their reduced retirement income can be consumed with monthly payments towards clearing the debts.
Equity release is often used to clear existing debts including interest only and repayment mortgages, loans and credit cards, and with no commitment of regular payments, you can focus on enjoying your retirement.
Read more about using equity release to pay off existing debts.
2. Making home improvements
Another popular use for equity release is making home improvements to allow retirees to remain in their home for as long as possible.
Whether you’re considering a new kitchen, looking to add and extension onto your home, or wish to adapt your home for mobility reasons, retirees often choose to use equity release to make much needed home improvements.
3. Supplementing retirement income
With more retirees becoming increasingly concerned with continuing to fund the lifestyle they had prior to retirement, in addition to day-to-day costs increasing, over 55’s are looking for ways to supplement their retirement income.
Equity release is often a popular choice to access the tied-up equity from their home and receive the tax-free cash in the form of a lump sum or drawdown facility to access at a later date.
4. Care costs
From home adaptations and in home care (domiciliary care) to help you remain in your home for as long as possible, to funding care home costs with a drawdown lifetime mortgage plan, equity release can offer a flexible option to fund a range of care costs.
Your adviser will discuss in detail the implications of equity release and if it is suitable to fund care costs in your personal circumstances as the plan will end when the last applicant passes away or moves into long term care.
Learn more about using equity release to fund care costs.
5. Larger purchases including cars and holidays
For many, retirement is your time to relax and enjoy the finer things in life. From dream holidays to purchasing the car you’ve dreamed of, or even a caravan for those weekend staycations, equity release can be used to fund larger purchases that you might not have the cash for.
6. Purchasing a second property or holiday home
From purchasing a second home for separation arrangements to buying your dream holiday home, there are many reasons why you might choose to purchase a second property during retirement.
Equity release can help fund your second home whether it be releasing tax free cash to put down a deposit towards a traditional mortgage, or using the cash lump sum to buy the property outright. However, it is important to consider the cost of purchasing a second property or holiday home seriously. These costs can include legal fees, council tax and stamp duty.
Your equity release adviser will be able to discuss in detail if equity release is right for your circumstances or if an alternative could be considered.
Read more about purchasing a second home with equity release.
7. Gifting to loved ones
We all want to see our loved ones succeed which is why some people consider using equity release to gift money to the ones they love. Perhaps it’s helping them onto the property ladder, or giving financial support through university, helping family members with a cash gift from equity release is a reason we often see.
It is important to remember the inheritance and tax implications of gifting money to family with equity release and you may need further advice for inheritance tax planning.
Eligibility and Suitability
Who’s Eligible for Equity Release?
To be eligible for equity release, you must be at least 55 years old and own your home outright or have a small mortgage balance. The property must be your main residence and in a good, habitable condition. Additionally, the value of your home should be at least £70,000, and if it’s leasehold, there should be at least 75 years left on the lease.
It’s also important to consider your suitability for equity release. You should have a clear understanding of the product and its implications on your financial situation. Consulting with a specialist equity release adviser can help you explore all available options and determine if equity release is the best choice for your circumstances.
Existing Mortgage and Equity Release
If you have an existing mortgage, you may still be eligible for equity release. However, you’ll need to pay off any outstanding mortgage balance before taking out an equity release product. This can be done using the equity release funds or by paying off the mortgage separately.
It’s also important to note that having an existing mortgage may affect the amount of equity you can release. Your equity release provider will consider the outstanding mortgage balance when determining how much equity you can access. In some cases, you may be able to use equity release to pay off an existing mortgage, which can help reduce your monthly payments or eliminate your mortgage debt altogether.
However, it’s crucial to consider the implications of using equity release to pay off an existing mortgage, including the potential impact on your inheritance and welfare benefits. Consulting with a qualified equity release adviser can help you understand these implications and make an informed decision.
How much equity can I release?
Whilst you might have an idea about how you wish to spend your equity release funds, the ultimate decision lies in how much tax free cash you can release from your home and if it is enough to fund your plans.
To find out how much equity you can release from your home, you will need to know the amount of equity you have in your home. This is equal to your property value, minus any outstanding mortgages or loans secured against your home.
From this, your equity release adviser will be able to discuss how much equity you could release based on current interest rates and the equity release products available to you. Some factors that may impact the amount you can release include property value, your age and your health.
To find out how much equity you can release from your home and the best plan for your circumstances, request a callback from out qualified advisers or get started with our free online equity release calculator.
Eligibility for equity release
If you are considering releasing equity from your home, you will need to meet the eligibility criteria. Whilst this can vary between equity release providers, the core eligibility criteria remains the same including:
- The youngest applicant must be aged 55+
- The value of your home must be £70,000+
- You must have 75+ years left on the lease if the property is leasehold
- The property must be your main residence
- The property must be in a good, habitable condition
Learn more about the equity release eligibility criteria or speak to one of our advisers to discuss your options in detail.
The cost of equity release
Despite equity release allowing you to access the tied-up funds in your home, it doesn’t come without cost. From initial set-up fees to long term costs, equity release should be carefully considered and discussed with a qualified equity release adviser.
The cost of equity release can include:
- Advice fees (at Bower, we offer a no obligation initial consultation, so if you choose not to proceed you will not be charged)
- Accrued interest (this will vary depending on your plans interest rates)
- Arrangement fees for your equity release agreement
- Solicitor’s fees
Learn more about the cost of equity release.
Impact on pension and benefits
If you’re thinking about equity release, it’s important to understand how it could affect your eligibility for means-tested benefits. This can help you determine whether equity release is the right choice for you.
The money you receive from equity release can take you over the threshold for some state benefits, including Universal Credit, Pension Credit, and Council Tax Reductions. You will need advice from a fully qualified specialist equity release adviser before proceeding with equity release, this will help you understand the implications of a lifetime mortgage or home reversion plan on your personal circumstances.
Learn more about the impact of equity release on benefits and pensions.
Independent whole of market equity release advice you can trust
At Bower, we pride ourselves in the relationships we build with our customers, but don’t just take our word for it… Let our Feefo reviews speak for themselves.
Rated exceptional on Feefo, our specialist equity release advisers take a customer first approach, meaning we will only recommend equity release if we believe it is the best option, and alternative options have been explored.
As whole of market advisers, we will compare every equity release product on the market to ensure you are matched with the best equity release plan for your circumstances.
Find out how much equity you could release from your home with our free online equity release calculator.
Proud equity release council members
As the industry body for equity release advice, the equity release council work towards ensuring its members adhere to the highest standards including a strict code of conduct to provide several safeguards for customers including a no negative equity guarantee.
We are proud members of the Equity Release Council, this means we follow the equity release council’s principles and will always act in the best interest of our clients.
Learn more about the safeguards of equity release and what this means for our customers.
Find your local equity release adviser
At Bower, our team of local equity release advisers cover all of England, Scotland, Wales and Northern Ireland. Whether you’re looking to discuss your options face-to-face or over the phone, our local equity release advisers are on hand to help.
Get started with our free online equity release calculator, or find your local equity release adviser today.
FAQ’s
Can I release equity for a new kitchen?
Yes, you can use the funds you release through your equity release plan to purchase a new kitchen or make any general home improvements you require.
However, you should consider all options available to you carefully before proceeding. Your equity release adviser will discuss in detail if equity release is suitable for your circumstances and the alternatives to consider before going ahead, including remortgaging, checking your eligibility for grants through your local authority, or downsizing to a smaller property.
Learn more about the alternatives to equity release.
Can I give equity release to my children?
Another common reason people choose to release equity is to help children or grandchildren with their finances. It might be to aid them in getting on the property ladder, a gift to celebrate a milestone, or help pay university or school fees. The sum you give them may also be excluded from inheritance tax, but this is worth discussing with a financial adviser before proceeding.
Can I use equity release to pay off debt?
Yes, equity release can be used to pay off your existing debt including personal loans, credit cards and mortgages. However, it is important to discuss the impact on your personal circumstances and any inheritance you wish to leave with a qualified adviser before taking equity release.
