Gary O’Brien

23 February 2021

Equity release – how you can make money from your home

The appetite for releasing equity from property shows no sign of abating. According to figures from retirement firm Key, older homeowners released £3.4 billion in property wealth in 2020, with almost 10,000 people releasing more than £1.1 billion in the final three months of 2020 alone.

While equity release can seem an appealing way to access the money tied up in your home, there are many factors to consider before you take the leap. Here’s what you need to know about equity release.

Accessing equity in your home

Equity release refers to a range of schemes that enable you to access equity – the cash tied up in your main residence – if you are over the age of 55.

Typically, you can take the money you release either as a lump sum, in several smaller amounts, or as a combination of both.

There are two main types of equity release product:

  • A lifetime mortgage is where you take out a mortgage secured on your main residence and retain ownership of your home. You can either make payments or let the interest increase (“roll up”) year-on-year. The loan amount and any accrued interest is repaid on your death or when you move into long-term care.
  • A home reversion scheme sees you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to live in the property until you die, rent free, but you agree to maintain and insure it. At the end of the plan your property is sold, and the sale proceeds are shared according to the remaining proportions of ownership.

What do over 55s use equity release for?

There are many reasons why you might want to release equity from your home:

  • To supplement your income – if your pensions and investments are insufficient to maintain your desired lifestyle in retirement, you may decide to draw cash from your home. You could use this to purchase an annuity – a guaranteed income – or invest it to generate an income.
  • To gift money to family – figures from Mortgage Introducer show that, in the first nine months of 2020, older homeowners used their property wealth to gift £530 million to family and friends. You might want to help a child or grandchild onto the property ladder, help with university fees, or just provide an early inheritance.
  • To improve your home – accessing a lump sum can help you improve your home, or make adaptations to it to support your needs as you get older.
  • Other reasons – you may simply want to use some of the money tied up in your home for yourself, such as to book a holiday or to buy a new car.

5 things you should do if you’re thinking about equity release

Talk to your family

Using equity release will affect how much your family inherit when you die. So, make sure you discuss your plans with your family so they know what you are going to do, and how it could affect them.

Having this chat may even establish that they can lend you the money you require, avoiding the need for equity release at all.

While conversations about money with family can sometimes be difficult, it’s something that you should always do if you’re considering releasing equity from your home.

Consider the alternatives

Equity release isn’t the only way that over-55s can raise money. There may well be other options that may be more appropriate to your current circumstances. These include:

  • Borrowing money from family members
  • Taking out a traditional mortgage on your property
  • A bank loan
  • Taking money from your pension fund
  • Selling your home and downsizing.

Explore all the possible options before deciding that equity release is right for you. Speak to a financial planner if you need advice.

Work out exactly what you need to borrow

If you’re considering equity release, you should always carefully consider the amount you want to borrow.

As many schemes don’t require you to make monthly repayments, you may be tempted to borrow more than you need.

However, remember that the amount you borrow plus the compounded interest will have to be repaid from the value of your estate when you die. Even an interest rate of just 3.5% would see the outstanding loan – capital and interest – doubling over twenty years. 

Many equity release providers offer a facility whereby you can borrow the minimum amount at the outset with the knowledge that you will be able to apply for further borrowing in the future.

Shop around

Many equity release interest rates are fixed for the term of the loan. So, it’s important to shop around to find the best rate available. This could save you and your family a lot of money.

You should also consider the other loan conditions applied by lenders in relation to your own individual circumstances. For example, if you’re planning on paying off some or all of your loan early, you’ll want to check the charges applied by different lenders to do this.

Similarly, if you’re thinking of downsizing, or moving to a different property, you’ll want to check that your intended lender will allow you to transfer your loan to another property.

Speak to an expert

As you have probably realised, independent financial advice is essential when it comes to equity release.

From initial discussions to establish if it’s a suitable option for you to choosing the right lender, having an expert to guide, advise, and support you is extremely important.

Working with a professional will ensure everything runs smoothly and that you don’t make any costly mistakes.

Get in touch

Ardent is a member of the Equity Release Council and our advisers, Ruth and Mark, are both individually registered. This means we’re ideally placed to help you if you want to release equity from your home.

Please email or call 01904 655330 to find out how we can help you.

Please note

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

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.


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