Equity release has been helping older homeowners to generate funds for decades. Now, more than ever before, the number of people taking out an equity release is quickly rising.
So, what is equity release and how can it help older homeowners to generate funds through their property?
Understanding equity release
Equity release can be complex, but it basically refers to releasing the value tied up in your home. It is important to note that equity release is only available to the over 55’s. This is because it takes many years to generate real value in a property.
One of the best things about releasing equity is that it is tax free. You can either choose from a lifetime mortgage or a home reversion plan. The former requires a loan to be secured on the mortgage, while the latter involves you selling your home but remaining in it rent free.
What can the funds be used for?
According to recent research from Key, older homeowners released a staggering £1.47 billion worth of property wealth in just the first half of 2020. The research also looked into how the equity is typically spent.
The three most common ways equity is spent was revealed to be:
- Home and garden renovations (59%)
- Mortgages and debt (19% and 29%)
- Holidays (27%)
While home and garden improvements topped the list, it is actually mortgage repayments which see older homeowners borrowing more for. The amount of total equity released for home improvements was just 16%, whereas for mortgage repayments it increases to 24%.
Interestingly, the way equity has been spent in 2020 has been different in the changing quarters. In the second half of the year, more homeowners chose to prioritise repaying debt and gifting to family than on updating their homes.
Are there alternatives to equity release?
While equity release is a good option for the over 55’s to generate a lump sum, it isn’t the only option available. Other options include Remortgaging, downsizing or selling assets.
With Remortgaging, you can choose to extend the mortgage term. This would lower monthly repayments, making you better off financially. You could borrow more, giving you access to a lump sum. However, downsizing to a smaller home may also be a great option. With this, you wouldn’t need to take on any extra debt.
Overall, equity release can be an ideal solution for homeowners over the age of 55. However, it is important to consider the risks and downsides too. Seek professional advice before deciding which option is right for you. This will help you to identify the risks and whether it is the best way to get the cash you need.