Equity release is a way for people to access the value of their homes or properties to gain cash for living expenses. Equity release allows homeowners to sell off some of the value they have built up in their property.
What’s Equity Release?
Main article: What is Equity Release
Equity release is a financial product that lets you access the value of your property to help with living expenses. Essentially, equity release allows homeowners to sell off some of their home’s value and use it for other purposes- such as income or buying an annuity.
Equity release product is offered by building societies in the UK. Still, they are not currently regulated like mortgages, so there may be a more associated risk when taking out these products.
Equity release is designed for those who have built up equity in their home. Equity release lets homeowners sell some of the value they’ve accumulated and use it as income or buy an annuity that provides a regular payment until death. It can be used when people need money but don’t want to move out of their own homes- often because they don’t want to leave behind memories of family members living there before them, enjoy the security that comes with having your property, or are worried about housing costs in retirement.
Home reversion plans are a type of equity release plan designed for homeowners who want to stay in their homes and not move somewhere else.
The Most Common Equity Release Uses of Equity Release
Equity release is a way of funding major home improvements using the equity built up in your property. These could include things like kitchen or bathroom refurbishment, redecorating, and new windows.
You can also use it to purchase furniture for an elderly relative who has passed away but left their possessions behind – this avoids having to sell valuable items which may have sentimental value attached to them.
Paying for University Fees
If you have children who are about to start university, equity release is an option for funding their tuition fees. You can use it to save money on tax and release the funds in stages so that they become available when your child needs them most – such as paying off student loans or covering living costs while studying at college/university.
Consolidate Your Debt
Suppose you have several debts, such as credit cards and mortgages. In that case, equity release can help to consolidate these into a single monthly payment.
As well as saving money on interest payments by getting rid of the separate bills that come with each loan, it also means not having to worry about delaying your mortgage repayments for fear of defaulting.
High Wedding Expenses
A wedding is an expensive event to attend, and usually, one that’s planned. Many couples will spend most of their joint resources on a big day, so they need a way to help fund it without putting themselves into debt or relying too heavily on gift money.
On the other hand,
A solution can be as simple as borrowing from your house with equity release – effectively taking out a mortgage for yourself but using the proceeds differently this time around (or even waiting until after you’ve paid off what’s already borrowed).
Business Investing and Expenses
Many people start new businesses with no money, which means they have to rely on borrowing. That’s usually fine for a while, but there comes the point when the bank will want its loan repaid and interest paid back too.
Equity release offers another way out: releasing some or all of your home equity so that you can access cash without selling up or remortgaging altogether.
If you’re in a position where money is tight, equity release could be the answer. Suppose you have an emergency and need to cover living costs, for example. In that case, this can give you funds without having to sell up your home or remortgage it (which would usually mean losing some of its value).
It’s also worth considering if you plan on retiring soon; getting access to cash now might make good sense while property values are still high – even if interest rates rise again later.
Some people might want to use equity release for a lifestyle upgrade. If you’re living in a house that’s too big or has poor security, it could be the solution.
You can move somewhere smaller and more manageable with your current income if need be without selling up entirely – which would usually mean losing some of its value anyway.
Help Your Close Family
Another use of equity release is to help your close families, such as grandchildren or a parent.
You can give them money via an income drawdown without having to sell up the property if you have the required level of homeownership, which could be worth doing even in retirement when living costs are often lower.
Update Your Image and Upgrade Pricey Items
Equity release is also useful for those who want to update their image and upgrade pricey items. This could be a new car, more expensive holidays, or the latest gadgets – which would usually mean borrowing money elsewhere on credit cards to afford them without selling up first.
Care Costs and Mobility Equipment
Equity release can also be used for care costs and mobility equipment.
A Care Cost is a sum of money that you pay to live somewhere else while receiving the required level of assistance with day-to-day needs such as dressing, bathing, and eating. The cost includes accommodation and arrangement fees in addition to charges for health or social services delivered by others on an hourly basis.
Mobility Equipment: This may be anything from walking aids like crutches and wheelchairs to stairlifts – sometimes even adapted vehicles if someone has restricted movement due to severe arthritis or other disabilities.
Think Carefully Before Entering Into Equity Release
They are complex and involve considerable risk. Therefore, it is important to get expert financial advice before agreeing to one of these agreements, which may be irreversible at the end of a fixed period (known as an annuity).
Here’s the deal:
Some people find themselves in a position where they need to take out equity release with no or very little income coming in – this means that when the loan comes up for renewal, it will usually happen on favorable terms; however, if your circumstances change, you might not be able to afford monthly repayments any longer and could lose your property altogether.
So think carefully about whether Equity Release is worth taking on such risks.
Is Releasing Equity the Right Option for You?
Main Article: Is Equity Release A Good Idea
The equity release is a loan that allows you to borrow money from your home or even part of it. It doesn’t have the same legal implications as bankruptcy and can be more flexible than other types of loans.
The person borrowing this money (the “borrower”) signs an agreement with their lender which sets out what will happen if they die before the debt has been repaid – for example, whether any remaining debts should fall to family members who are named in terms of the agreement or not.
Best of all:
It’s important to bear in mind that releasing equity comes with considerable risk and may lead to unforeseen financial difficulties later on down the line, especially considering how difficult these agreements might be to cancel once signed off.
For some people, equity release is the only way to maintain their lifestyle and stay in their own home, while others might have a one-off need for cash.
How Does Equity Release Affect Benefits?
The borrower needs to be aware of the effect on their state benefits. The Department for Work and Pensions (DWP) advises that if a person receives certain benefits, such as income-related Employment Support Allowance or Universal Credit, they can’t take out equity release without risking the loss of these payments.
However, there are some exemptions: housing benefit recipients who receive Disability Living Allowance will not lose this entitlement when taking out an equity release agreement; pensioners aged 60+ years old do not need to claim means-tested benefits during retirement and may be able to use up assets before applying for State Pension which does have restrictions relating to property values.
Borrowers with at least 50% disability may not be required to provide evidence of income. They may be able to borrow up to 75% of their home’s value.
The above exemptions are for those who already claim means-tested benefits or State pension – anyone else will need to show that they still have adequate income after taking out an equity release agreement for the DWP not to take action against them.
Some people might think it is a good idea because they can get money without tax deductions. Still, something called “income tax” goes along with this kind of thing, so you should do your research before doing anything!
Every investor has a different risk tolerance. Using equity release to fund your retirement income, you can maintain the same lifestyle without worrying about losing money on an ill-timed investment. Of course, equity release is not for everyone. Still, it may be right for you if you want to retire while maintaining control of assets in case something unexpected happens.