Is equity release a good idea?

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Customers often ask whether equity release is a good idea for them. It’s an important question but one that can’t be answered with a simple yes or no.

In truth, whether equity release is worth considering will depend on your own personal circumstances. Let me explain.

Firstly, lets clarify what equity release is. Releasing equity from your home with a lifetime mortgage, the most popular type of equity release, is a way of accessing the wealth tied up in your home without selling it.

The money you receive is tax free and unless you choose to, there are no monthly repayments to make. Instead, the loan and interest are repaid from the sale of your property when you die or move into long-term care.

Equity release isn’t cheap and it will impact any inheritance you are planning to leave for loved ones. So it’s not for everyone. However here are some examples of when I think equity release could be a good idea:

You need extra cash

If you’re retired or approaching retirement and concerned that your pension will provide insufficient income to lead a comfortable life, equity release could help. I would suggest that if this is something you are considering, you only borrow the amount you need at the outset. With a drawdown lifetime mortgage, you can hold money in reserve for future borrowing.

You need to pay off an existing mortgage

One of the most common reasons for using equity release is to repay an existing mortgage. Perhaps you have an interest only mortgage that now needs repaying but you don’t have the funds to do so. In 2023, 35% of our customers used a lifetime mortgage to do just that. Now they no longer have monthly payments, giving them more disposable income.

You have no dependents

If you are in need of cash and have no dependents to leave an inheritance to, why not consider accessing the wealth that is tied up in your property. The money you have does need to last a lifetime though, so I recommend you seek advice from qualified equity release adviser on the best way to manage your finances.

You are not concerned about leaving an inheritance

Likewise, if you have dependents but are not concerned about leaving your property as inheritance, equity release could be a good idea. And as long as you choose a lender who is a member of the Equity Release Council, you will be protected by the ‘no negative equity guarantee’ ensuring your family will never owe more than the value of your home.

I would suggest that you talk through your plans with your family first, so there are no surprises when the time comes.

You have dismissed the option of downsizing

Downsizing could be a cheaper alternative to equity release and one that you should consider before going ahead. It could provide you with the funds you need and give you the opportunity to move to a property that is better suited to later life living.

However, downsizing will not suit everyone, so if you prefer to stay in your home, equity release could be worth considering.

You fully understand the impact of compound interest

As I have mentioned, one of the downsides to equity release is that the interest charged is compounded - this means you pay interest on the interest already charged.

The rise in house prices should mitigate these costs over time to a degree, but nevertheless it will impact your estate when you die. 

Your adviser should provide you with an illustration of how this will work so you can decide if it is something you are comfortable with.

You don’t receive benefits

As the money you receive will form part of your savings, it could affect any means tested benefits your currently receive. A qualified adviser will be able to assess your situation and advise you on whether it is worth pursuing.

You are aware of the risks

Equity release is highly regulated with safeguards in place to protect customers, but in addition to the benefits, there are some downsides to lifetime mortgages that you should consider.

As with any financial decision, it’s important to weigh up the pros and cons of releasing equity this way before going ahead, so you can be certain of making a fully informed decision

Is equity release a good idea for you?

Equity release has many benefits and accessing the money tied up in your property could be a good way of funding your retirement needs. However, it is a lifetime commitment and it will impact your estate, so it is important to seek specialist advice before making any decisions.

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