Is equity release right for you?

Some people choose to access tax-free cash that is tied up in their home. We look at some of the reasons why people opt for equity release, as well as why it is not suitable for some people.

 

Being able to remain in one’s own home for as long as possible is, for many people, increasingly an important part of how they view older age.

In fact, the majority (80%) of over-55s questioned in a recent survey said they would opt for equity release instead of moving home[1] and, most likely, having to downsize.

Equity release products allow you to access some of the money that is tied up in your home, through either a lifetime mortgage or home reversion. This allows you to have some additional cash income while remaining in your home. However, equity release is not right for everyone.

We look at why people opt for equity release, as well as potential pitfalls that you should be aware of.

 

Reasons why people choose equity release

 

The costs of downsizing

Out of 1,000 UK adults surveyed who have taken out equity release, nearly one in ten (9%) said the reason they chose not to sell their home and downsize was because of the costs associated with moving, including stamp duty[1].

The average cost to buy and sell a property in the UK was just over £10k[2] – this includes an average bill of £1,800 for stamp duty. Although there is currently a stamp duty holiday due to COVID-19, this is usually a significant cost, and is one of main ones associated with moving home.

 

Avoiding physical and emotional stress

Moving home may come with both physical and emotional stress, and many people are hesitant to leave behind beloved neighbours and a family home full of memories. Add the fear of the unknown, and a move from a familiar environment can be overwhelming.

 

Negative equity guarantee

All equity release plans that are approved by the Equity Release Council include what’s known as the ‘no negative equity guarantee’. This ensures that those releasing equity will never owe more than their home’s value.

 

Supporting lifestyle in later life

Equity release can be a good solution for people who find themselves desiring additional income in later life, given that they might be living in properties often worth hundreds of thousands of pounds.

 

Why equity release might not be right for you

 

Equity release products are complex

While equity release can be a good option for some, it can be complicated. If you change your mind, equity release can be difficult and expensive to get out of. In addition, you have to be careful about letting debt roll up, as this can happen very quickly if equity release is not properly managed.

 

You could end up losing money

While you avoid the costs of moving and free up cash, equity release is more expensive than an ordinary mortgage.

Furthermore, home reversion plans are likely to give less than market value valuation compared to selling your property.

Therefore, you should speak to a financial adviser before making any decisions. They can review individual circumstances and the bigger picture to see if equity release is right for you.

 

It could negatively affect income

Another thing to bear in mind is that in some cases, your income could be negatively affected by equity release. For example, the money you receive from equity release may impact on your eligibility for state benefits.

Also, you may not be able to rely on money from equity release later in life, for example if you need to fund ongoing long-term care.

 

Talk to an adviser to discuss your individual situation

If you’re interested in learning more about equity release and whether it could be an option for you, a good start would be to speak to a financial adviser. A professional adviser will review your individual circumstances and help you decide whether or not equity release is the right choice.

 

This article is for information purposes only and is not intended to constitute financial advice. Equity release products may involve borrowing against or selling part of your home. There may be more suitable methods of raising the funds you need. A lifetime mortgage can quickly erode the remaining equity, and as a result there may be no value left to pass on. Equity release may require a lifetime mortgage or home reversion plan. To understand the features and risks, you should speak to a financial adviser.

1. Standard Life and Age Partnership clients were emailed with an invitation that contained a link to an online survey. 1,084 customers took part the survey.

2. https://mybigmove.co.uk/cost-of-moving-house2 – 2018