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How equity release can unlock the cash in your home

Tax-free cash freed up from your home could help fund your retirement – find out how much with the equity release calculator below

Friday 10 January 2020 15:37 GMT
Equity release is available to UK homeowners who are at least 55-years-old, with properties that are worth a minimum of £70,000
Equity release is available to UK homeowners who are at least 55-years-old, with properties that are worth a minimum of £70,000

Thousands of people are giving themselves a tax-free retirement boost by using equity release to unlock some of the value in their homes.

A record £3.94bn was raised by 82,000 homeowners over the age of 55 last year as equity release entered the mainstream of financial services. According to figures published by the Equity Release Council, the industry’s trade body, 2019 has seen the busiest ever start to a year. A staggering £936m of property wealth was unlocked by 20,397 customers during the first quarter of this year alone, with 10,854 new plans agreed in this period.

Rising living costs and increased life expectancy are forcing people to find new ways to bolster their pension pots. For many, the solution lies in the incredible wealth that has been building up in their properties after many years of house price increases.

Equity release, therefore, enables them to tap into this value – while still allowing them to continue living in the family home. It means they get to enjoy tax-free cash to spend on everything from luxury holidays and new cars, without having the upheaval of downsizing to a smaller property.

How does equity release work?

Equity release is available to UK homeowners who are at least 55-years-old, with properties that are worth a minimum of £70,000. There are two main types: lifetime mortgages and home reversion plans. They work in different ways – and which will be the most suitable depends on your circumstances. To understand the features and risks of both a lifetime mortgage or home reversion plan, you should ask for a personalised illustration from your equity release advisor.

A lifetime mortgage enables you to borrow money secured against your home. You can take this money as a lump sum or in smaller amounts over time, up to an agreed maximum. You retain full ownership of the property, while the loan and accrued interest will be repaid by your estate when you die or move into permanent long-term care.

Home reversion plans, meanwhile, involve you selling all – or a percentage – of your house while continuing to live in the home. At the end of the plan, the property is sold and the proceeds are shared according to the remaining proportions of ownership.

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.

An equity release advisor will tell you everything you need to know the products, including how equity release will affect the amount of inheritance you can leave and if your entitlement to means-tested benefits could be affected now or in the future.

For the right people, these schemes can provide a sensible solution to pressing financial problems and enable them to enjoy a greater standard of living in later life. However, they may not be suitable for everyone, which is why it’s essential to seek independent financial advice before making your final decision.

Age Partnership Limited is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432

Click here to use our free equity calculator

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