Using Equity Release in Retirement

Please Note: We are not mortgage professionals, which is a separate profession in its own right and only some of them advise on Equity Release. Therefore, this article is not intended as advice and should not be acted upon as such. Instead, we can refer you to suitably experience and qualified professionals who we can work with to tailor your financial plan.
Your home is likely one of your largest assets. Unlocking some of its value can provide funds to enhance retirement living. Equity release allows homeowners aged 55+ to access property wealth through loans or plans secured against the home. Used strategically, it can complement pensions and savings for greater retirement cashflow.
How Equity Release Works
Equity release gives cash lump sums or income from your home without moving. There are two main types:
Lifetime Mortgage – This works like a mortgage in reverse. You borrow against the value of your home and make no repayments during your lifetime. The loan plus accrued interest is repaid when the last borrower dies or moves into long-term care.
Home Reversion Plan – You sell a portion of your property’s ownership (e.g. 25%) to a provider in exchange for a lump sum payment. You receive a reduced share of sale proceeds when the home eventually sells.
In both cases, there are no affordability checks or required repayments. You keep your home and so can live there lifelong.
Benefits of Equity Release
Using equity release offers several advantages:
– Access tax-free cash from your largest asset.
– No required mortgage-style repayments.
– Remain a homeowner for life.
– Supplement pension income with funds as needed.
– Grow inheritance by leaving untouched housing wealth.
Releasing equity prudently while rates are low can give retirees greater financial flexibility.
Uses for Released Equity
Typical uses of equity release cash include:
– Paying off existing mortgages or debts.
– Home improvements and adaptations.
– Funding holidays and luxury purchases.
– Helping children/grandchildren with house deposits.
– Paying for care home fees.
– Bridging income gaps in retirement.
Having funds for unexpected costs helps limit drawing down pension savings too fast also.
How Much Equity Can Be Released?
The amount of equity you can release depends on:
– Your age – The older you are, the more equity you can access
– Property value – Most schemes have a minimum £70,000 property valuation
– Outstanding mortgage – Any existing mortgage reduces funds available
– Choice of interest rates – Lifetime mortgages offer fixed and variable rates
Releasing in smaller tranches over time avoids accruing higher interest charges.
Evaluating Costs
Lifetime mortgages and home reversion plans do carry costs:
– Interest – Accumulates on lifetime mortgage balances until repayment
– Setup fees – Arrangement and legal costs between £600-£2000
– Early repayment charges – Levied if you fully repay the loan within a set period
– Reduced inheritance – As less of your property is owned if taking a reversion plan
Even so, the costs may be reasonable to gain greater retirement security and peace of mind. Still, compare schemes carefully. Independent equity release advice ensures you select the optimal product.
Protecting Your Interests
It’s critical to protect interests when releasing equity:
– Seek advice from a qualified equity release advisor who provides whole-of-market product comparisons and illustrations.
– Choose a plan with a “no negative equity guarantee” so the loan never exceeds the home’s sale value.
– Check if waiver of early repayment charges applies upon moving into long-term care.
– Understand all costs and terms before committing – don’t feel pressured.
– Involve family members for transparency. Equity impacts inheritance.
– Take time to consider alternatives like downsizing or utilizing other assets first.
Releasing equity should not be done in haste or without expert guidance. Advice ensures you make the best choices for your situation.
Is Equity Release Right for You?
Equity release merits consideration for:
– Retirees needing capital to pursue plans and desires
– Those looking to consolidate existing debts into one manageable payment
– People with high health/longevity expectations who risk outliving savings
– Individuals with limited retirement income sources beyond the state pension
– Homeowners with substantial untapped housing equity they can utilize
Releasing equity does reduce the legacy value of your estate. Have open family discussions to gauge impacts everyone is comfortable with.
Unlocking home value can empower smarter retirement living. But it demands careful thought and planning tailored to your personal financial situation. Speak to our experts at Fiducia Wealth Management to see if equity release has a place in your plans.