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Why do people use equity release, and is it an option you should consider?

An older couple sitting at their kitchen table looking at a laptop and paperwork

As house prices soar, your home could be one of the largest assets you own. Equity release offers a way to access some of the money that’s tied up in your property, and there are many reasons why more people are considering this option.

According to the Equity Release Council, homeowners aged over 55 unlocked £1.17 billion of property wealth between April and June in 2021 alone. During this period, over 20,000 households used equity release to boost their funds.

Equity Release can provide a lump sum for homeowners to use how they wish. Research from Canada Life found that one of the main reasons households are using equity release is to pay off existing debt. This debt repayment can cut monthly outgoings and may provide homeowners with more freedom. Almost half (46%) of people using equity release in the first nine months of 2021 used at least some of the money to pay off a mortgage.

A third (34%) said home improvements that added to their enjoyment of their home were behind their use of equity release.

Alongside these, there are many other reasons why people may use equity release, from gifting cash to loved ones to enhancing their retirement lifestyle.

How does equity release work?

Equity release is a way to release money from your property, with the most common method being through a lifetime mortgage.

A lifetime mortgage is a loan that’s secured against your home. However, rather than making regular repayments, the debt is usually not settled until you die or move into long-term care. Any interest due is rolled up. You can continue to live in your home, and it frees up some of the money you have in property.

Equity release can seem like an attractive option but there are drawbacks to consider too. As you won’t typically make any repayments, the amount of interest can rapidly increase over the years. As a result, it can affect your options in the future and significantly reduce the inheritance you leave behind for your family.

In most cases, you’ll need to be at least age 55 to be able to use equity release. In recent years, the equity release market has become more flexible. Homeowners may be able to choose to ring-fence a proportion of their property wealth to pass on to loved ones or make repayments to reduce the effect of interest rolling up.

Average equity release available exceeds pension pots for half of homeowners in England and Wales

House prices have increased rapidly in the last five years, which means that half of homeowners could access greater sums through equity release than they have in their pension.

According to Legal & General, the average amount in a pension is £61,930. In comparison, the organisation estimated that homeowners in 53% of areas in England and Wales could access more through equity release, with an average amount of £72,988. In the last five years alone, that figure has increased by £14,000 thanks to median house prices increasing by 24% since 2016.

As house prices continue to climb, property could become a key part of funding retirement for future generations.

Claire Singleton, CEO at Legal & General Home Finance, said: “We anticipate that using your home to fund your retirement will become more commonplace, whether that’s by downsizing to free up funds or releasing money tied up in your home through products like a lifetime mortgage.”

With the potential sums accessible through equity release comparable to a pension, it’s easy to see why some people may find it an attractive way to increase their wealth in their later years. But it’s not the right decision for everyone, and there are serious drawbacks that are important to consider before you proceed.

If you’re thinking about equity release, the below questions can help you explore all your options and understand if it’s something you may want to look into further:

  • How do you plan to use the money released from your property?
  • What other assets do you have that could help you reach your goals?
  • How would you fund long-term care if you need it?
  • Is leaving an inheritance for your loved ones a priority?

We’re here to help you if you’re not sure how your property wealth could support your goals now and in the future. If you have any questions at all or would like to arrange a meeting, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

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