Thousands of homeowners aged 55 and over are releasing equity from their homes this year to give their finances a boost.
There were 16,691 new equity release plans taken out between January and March this year, according to latest data from the Equity Release Council, equivalent to 185 new plans being agreed each working day.
Equity release is a way of freeing up some of the wealth tied up in your home, without having to sell it. The interest you owe is only repaid, along with the initial amount of money you’ve released, when you die or go into long term care. Although for some it can be a useful way to raise cash, equity release has its drawbacks and can have a significant long term financial impact on your wealth – it is certainly not suitable for everyone. You can find out more about some of the risks of equity release in our guide Equity release – what are the risks?
While one person’s motivation for turning to equity release may be different from others, there are some key reasons that prompt most people to unlock some of their property wealth.
So, if you’ve been thinking about equity release, here are some of the most popular reasons people decide to do it.
1. To clear an existing mortgage or consolidate debts
One of the most popular reasons for people choosing equity release is to clear an existing mortgage or consolidate debts.
This may be due to the fact that in the 80s and 90s, interest-only mortgages were among the most popular types of mortgage, with many people choosing to take one out with a 25-year term. With this kind of mortgage, you only repay the interest you owe each month and not any of the capital. This only has to be repaid at the end of the mortgage.
Many of these mortgages have reached or are due to reach maturity, and a number of these homeowners have turned to equity release to help them repay the capital they’ve borrowed. Find out more about the options that might be available to you if you have an interest-only mortgage in our guide How do I pay off my interest-only mortgage?
Of course, it’s not only those with interest-only mortgages that might use their released equity to clear their mortgage. A number of people also use it for their repayment mortgage, so they can enter their retirement years mortgage-free, or to consolidate debts, so they don’t have to spend any of their income making monthly debt repayments.
2. To fund home improvements
Many of us want to stay in our family homes for as long as possible, and releasing equity for home improvements might mean you can alter your property for your future needs, or simply create the home you’ve always dreamed of.
Soaring house prices in many areas of the country, combined with steep moving costs, mean that for many people, improving their property is a cheaper option than moving.
If you’re weighing up the pros and cons of using equity release to fund renovations, have a look at our article How to pay for home improvements to see some other options you might want to consider, or if you’re not sure whether to stay put or move, our article Should I move or improve? might help.
3. To cover day-to-day living costs
Rising household bills mean that growing numbers of people are turning to equity release to help them cover their day-to-day living costs.
Even in normal times, using the equity released from your home to boost your income is a popular choice, especially for those who find themselves asset rich but cash poor when they reach retirement.
4. To give money to family or friends
It has become increasingly popular to release equity to give as a ‘living inheritance’ to family or friends. This money is often given to help recipients achieve a specific financial goal, for example, to fund higher education, or to help them get onto the property ladder.
Of course, this isn’t an option everyone will feel comfortable with, and you should only consider it if you’re financially stable yourself. If you’re considering taking this route, you can read more in our article Can I take money out of my property to give to my children?
5. To fund holidays and other purchases
Often, people who apply for equity release plan to use some of the money to book a holiday or go travelling.
Bear in mind that releasing equity to pay for a holiday could end up costing you much more in the long run, so it shouldn’t be entered into lightly. For many people, releasing equity means they can finally achieve the dream or aspiration they’ve worked towards, but it’s certainly not without its downsides. You can learn more about how equity release works and the pros and cons involved in our guide Equity release – what is it and how does it work?
Whatever your reasons for considering equity release, it’s important to remember that you are effectively taking money out of your home. This could not only affect any means-tested benefits you might have been entitled to, but will also impact the value of any inheritance you may have planned to leave. While you can continue to live in your home after releasing equity from it, you’ll need to check the small print to ensure that you are comfortable with the rights that any equity release firm will have over your property.
If you’re considering equity release, your first step should be to seek advice from a qualified financial advisor. You can find a local financial advisor on VouchedFor, the review website for financial advisors, or Unbiased, which connects users to advisors in their area, or for more information, check out our guides on How to find the right financial advisor for you.
They can help you understand the best option for you and recommend a suitable product from a member of the Equity Release Council (ERC). The council has a number of product standards which help safeguard borrowers so it is important that any provider you choose is a member. Advisors can also be members of the ERC. You can search for an equity release provider that belongs to the ERC here.
If you’re looking for somewhere to start, you can get expert advice from a Rest Less Mortgages equity release specialist. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
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