Why release equity from your home?

28 February 2021

5 min read

Melanie Wright
Melanie Wright

Personal Finance Journalist

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If you’re aged 55 or older and have owned a property for several years, there’s a good chance that much of your wealth may be tied up in your home.

We look at some of the reasons people might decide to release equity from their home, and some of the pros and cons of doing so. 

Please bear in mind that equity release isn’t the right decision for everyone, so it’s vital to seek professional financial advice before proceeding.

 

To boost retirement income

Plenty of people find themselves asset rich but cash poor when they stop work, unless they’ve managed to build a substantial pension pot, their outgoings may be higher than their retirement income.

According to research by the Equity Release Council*, which is the trade body for the equity release sector, older homeowners anticipate they’ll need an annual income of £35,1961 when they retire, more than double the average £17,212 retirement income they’re likely to achieve. If downsizing isn’t an option, unlocking some of their property wealth could help close the retirement income gap.

 

To clear an existing mortgage or consolidate debt

Equity release can be used to pay off a mortgage or consolidate debts so that you no longer have the hassle of making monthly repayments.

This can provide valuable peace of mind if you’re worried about being able to pay off what you owe out of your retirement income.

Don’t forget though, that even though any equity released doesn’t have to be repaid until you die or move into long-term care, interest will continue to roll up on the sum you’ve borrowed over time. Also, it could significantly eat into any inheritance you’d planned to leave loved ones and could also affect your entitlement to means-tested benefits.

 

To help family

Parents, or grandparents, often find that their children or grandchildren need most financial help when they are in their teens, twenties or thirties, perhaps because they need to fund higher education, pay for a wedding, or get on the property ladder. Equity release can be used to provide a ‘living inheritance’ so that parents can pass on some of their property wealth whilst they are still alive.

If you’re considering equity release to help family members, it’s vital to discuss your plans with them, so they are fully aware of the longer-term implications of you unlocking equity from your home.  For example, although they’ll benefit from your help now, you’ll have less to pass on when you die.

 

To make home and garden improvements

Many people want to improve their properties rather than move, so housing wealth is often tapped into to make home improvements, or to ‘age-proof’ properties. For example, homeowners may decide to adapt bathrooms or move a bedroom downstairs, so they can live more comfortably as they grow older.

 

To pay for care costs

Equity release can be used to help pay for long-term care, if homeowners aren’t eligible for support from the state.

In England or Northern Ireland, you will need to pay for your care home costs, home care costs or live in care costs if you have more than £23,250 in savings**.

In Scotland, the threshold is £28,000 and in Wales, the threshold is £24,000 for home care or £50,000 for care homes**.

Charity Age UK says care at home costs vary depending on where you live, but typically cost an average of around £15 an hour. 

If you need live-in care, however, then costs can range from around £850 a week to £1,050 a week, according to care provider Hometouch****. Costs may be even more than this if there are two or more people that need support.

Whatever the reason you might be considering equity release, whether it’s one of those outlined above, or something entirely different, remember that professional advice is essential. An adviser can discuss the options available to you and help you decide on the right course of action for you.

*Equity Release Council

**Age UK

***Hometouch

Biography

Melanie Wright is an award-winning freelance financial journalist, who has written about personal finance and consumer issues for the past 22 years. She is a former Deputy Editor of The Daily Telegraph's Your Money section, and wrote the Sunday Mirror’s Money section for more than a decade. She contributes to a wide range of publications and websites, including The Sunday Times, The Daily Telegraph, The Observer and the Radio Times.