As it continues to grow in popularity more people are asking the question what is equity release? But the more important question should be, why should you consider equity release.
Equity release allows UK homeowners over the age of 55 to unlock part of the financial value in their home for various reasons, usually to help manage their finances in later life. This can give them cash to spend while they are still fit and healthy, help fund a particular purchase like a holiday home, or provide a living inheritance for their loved ones.
Equity release is becoming more and more common. Figures from the Equity Release Council found that annual growth in 2018 reached a high with lending totalling £3.94 billion. This included 46,000 new equity-release customers (of 82,791 in total).
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Telegraph Equity Release insights from 2018 found that the average amount of equity people released as an initial tax-free lump sum was £83,136.75. As equity release continues to grow in popularity, more people are releasing cash from their homes in order to pay off debts or have an increased retirement income.
Here are five reasons you should consider equity release.
1. Consider equity release to pay off an existing mortgage
A quarter (24.6%) of Telegraph customers said they used equity release to clear their existing mortgage and to help fund their retirement. With many homeowners having built up significant equity as house prices increased over the last 20 years, freeing themselves from the burden of monthly repayments can boost retirement income and provide a tax-free sum to start spending while they enjoy new-found free time.
Freeing up cash with a lifetime mortgage from an Equity Release Council-approved lender means you can benefit from the knowledge that you retain full ownership of your home, and you have the right to remain in your property for life or until you enter long-term care. You simply take out a fixed-rate long-term mortgage against your home, with the cost covered by the eventual sale of the property. The ‘no-negative-equity guarantee’ ensures that you can never owe more than the value of your home, so, even if house prices go down, you won’t lose out.
Here is what one of our customers did with their Lifetime Mortgage:
Margaret and David Brown wanted to help their adult children but still leave themselves with enough for their own retirement. They chose to release equity with a ‘drawdown’ fixed lifetime mortgage with Responsible Life to help their eldest son, John, save for a house deposit and to help support their daughter, Amy, as she finished her studies and saved for her upcoming wedding.
By using the equity that their property had built up over the years, they were able to keep their wealth in the family, freeing up a tax-free lump sum to use as a cash reserve for their own future finances.
2. Consider equity release to fund home and garden improvements
Twenty-two percent of homeowners said that they chose to unlock their property wealth to improve their own home, which may have been a long-term objective. After all, a lifetime mortgage guarantees that you’ll be able to stay there for life, so improving it for a better quality of life is quite common. You could also boost your home’s value, allowing you to sell it more easily in the future if you plan to downsize or move into a care home.
3. Consider equity release to boost disposable income
Having a cash cushion for later life is a prime concern for 23.2% of our customers, especially when investments are not always guaranteed and many, especially the self-employed, may not have paid into private pensions to boost their state pension. A tax-free lump sum can give some breathing space or provide a long-term top-up to retirement income or care costs.
4. Consider equity release for inheritance gifts and planning
The knowledge that ‘you can’t take it with you’ means that many – 10.1% of Telegraph customers – have planned ahead. Rather than having their capital tied up in their home, which would eventually be subject to inheritance tax, they could pass on a large part of its value as a gift to their children with equity release. This is often used for house deposits or to help with student debt – the kind of thing that can be appreciated now rather than being taxed once they pass away. We are obliged to say that the Financial Conduct Authority does not regulate inheritance tax planning.
5. Consider equity release to fund holidays and large purchases
It’s not all diligently saving for care homes or retirement pots of course. Part of freeing up the equity in your home is so that you can enjoy your retirement when you finish full-time employment. Take a cruise, escape the British winter, or simply spend the cash on hobbies or city breaks. Some people also decide to fund single purchases such as the car they’ve always wanted.
Find out if equity release is right for you
All equity release schemes are regulated by the FCA (Financial Conduct Authority). Before you make your decision, you should research if equity release is a safe option. Always get equity release advice from a qualified and experienced independent financial adviser.
This is vital as releasing equity from your property in the form of a lifetime mortgage may reduce the value of your estate and could affect your entitlement to means-tested benefits.
Discover how much tax-free cash you could release with the Telegraph’s easy instant equity release calculator
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Information correct at date of publication.