The amount of wealth that’s accessible through equity release is on the rise. It’s something more people are using to boost their income later in life for a variety of reasons. Read on to find out what equity release is and why people are using it.

You could use equity release to unlock property wealth

Equity release is a type of long-term loan that allows you to take out cash from the value of your home.

The most common way of doing this is through a lifetime mortgage. With this option, you don’t have to make loan repayments. Instead, the money you borrow, along with any interest accrued, is paid when you pass away or if you move into long-term care.

The money received from equity release is tax-free and can be used however you like. You can choose to take a lump sum or regular smaller payments. As a result, it can be an attractive option if you want to boost your income later in life.

However, there are drawbacks to consider too. As the interest payments are typically rolled up, the amount owed can quickly rise and affect what you leave behind for loved ones. It can also limit your options in the future, such as if you want to move home.

To be eligible for equity release, you will usually need to be at least 55 years old. You don’t have to own your home, but if you still have a mortgage, you will typically need to pay it off with the money you receive. Each provider will have its own criteria that you will need to meet.

More than 200 people use equity release each day

Equity release has become more popular in recent years. According to the Equity Release Council, more than 200 customers a day use equity release. In the second quarter of 2022, homeowners accessed more than £1.6 billion of property wealth.

There are many reasons why the amount accessed through equity release is on the rise, including increasing property prices meaning homes are often among the most valuable assets people have.

Analysis from Canada Life estimates that around £811 billion is available to release across England, Scotland and Wales by over-55s.

So, why are people turning to property wealth later in life? The cash injection can help create long-term financial security and mean you can live the life you want. Additional research from Canada Life revealed the top reasons why people are using equity release.

The top 5 reasons why people are turning to equity release

1. To pay off mortgage debt

Half of the people that use equity release use some or all the cash to pay off an existing mortgage.

If you’re nearing retirement with a mortgage, you may worry about how you’ll meet financial commitments. It could also mean you need to delay retirement or change your lifestyle goals. For some, equity release can provide a solution.

While you’d still have debt after using equity release, you won’t need to make repayments. This can help your income stretch further. However, keep in mind that interest can increase significantly and affect the value of your estate.

2. To make home improvements

More than a third of people plan to use some of the money to make home improvements to create a more comfortable environment.

As equity release can make it more difficult to move home, you should consider whether the improvements will ensure that your property is suitable for the long term.

3. Support day-to-day living costs

As the cost of living rises, it’s not surprising that some people are using equity release to boost their income for day-to-day costs. A fifth of people will use some of the money they’ve withdrawn from their home to pay for bills.

While equity release can provide a lump sum or smaller withdrawals, keep in mind you won’t be able to take out another loan against your home. As a result, if you faced a financial shortfall in the future, you may have limited options.

You should consider how you’ll create a sustainable income over the long term if you’re facing challenges due to the rising cost of living.

4. Provide gifts to family and friends

According to Aviva research, more than half of those over 55 want to provide gifts to their families during their lifetimes rather than leaving an inheritance.

This is reflected in the fact that 15% of people who have used equity release plan to use some of the wealth to provide gifts to family and friends.

If this is one of the reasons you’re thinking about using equity release, you should carefully consider if it could affect your long-term security, and the potential tax implications.

5. Make substantial one-off purchases

Finally, a significant proportion of people are using equity release to make a substantial one-off purchase. These include a holiday (14%), buying a new property (12%), and buying a new car (10%).

Equity release can be a valuable way to make purchases that could help reach lifestyle goals, but it’s important to consider the alternatives and whether they could be more appropriate.

Is equity release right for you?

Equity release can be useful, but it’s not the right option for everyone.

Before you apply for equity release you should ensure you explore other options too. From using savings to pay for one-off purchases to paying a mortgage in retirement, it’s vital you fully understand what all your options are, and how they’d affect your short- and long-term financial security.

Using equity release can have a significant effect on the value of your estate and mean you leave behind less for loved ones. It can also limit your options. For example, you will not be able to secure other loans against your home and it can make it more difficult to move.

You should think carefully about how equity release could affect your long-term plans and security. You may not be able to reverse the decision once you use equity release.

By going through your complete financial plan and the implications of using equity release first, you can have confidence in the decision you make.

If you have questions about equity release and how it could help you reach your goals, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.