Equity release could be for you.

Britons love their homes. It is one of our nation’s defining characteristics. And as we get older, our connection to the place we live gets even stronger.

Whether they have treasured memories of seeing children and grandchildren grow up in their home, or have spent years making the place just the way they like it, many cannot imagine giving it up.

But with the cost of living rising, older people may find they need some extra money to pay off debts or live comfortably in retirement. A property is many people’s most valuable asset, so selling it and moving to a smaller home is a common way to raise those much-needed funds.

But it is not the only option. A recent survey by the equity release advisor, Age Partnership, found that more than a third (37 per cent) of those who had taken an equity release plan, did so because they didn't want to leave their home.

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How does equity release work?

Equity release loans allow homeowners over the age of 55 to access the value that has built up in their home, tax-free.

The most popular type of equity release plan is a lifetime mortgage. This is where the property owner takes out a loan secured against their home which is worth up to 50 per cent of its value. Crucially, they remain the sole owner.

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The loan and interest accrued is then repaid through the sale of the property when the last surviving borrower dies or goes into long-term care.

As the interest accumulates it can become a substantial part of a home's value, although some plans now allow the interest or part of the loan to be repaid earlier to lower costs.

After they have cleared any outstanding mortgage on the property, the homeowner can enjoy spending the rest of the money.

As a nation of home lovers, it is no surprise that almost a quarter (24 per cent) of those who took out equity release plans between January and May of 2022 used the money to pay for home improvements, making their ‘forever home’ an even more comfortable place to spend their golden years.

It was the second most popular use of equity release funds, second only to repaying a mortgage, which was cited by 31 per cent of respondents to Age Partnership.

Equity release is not for everyone, however. One of the main downsides is that homeowners may not be able to pass their property on to their children after they are gone, and repaying the loan with interest may result in a smaller-than-planned inheritance.

However, some borrowers like the fact that they can use some of the money gained from equity release to make a financial gift to their family while they are still around to see them enjoy it.

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Age Partnership data showed that 12 per cent of borrowers gifted some of their equity release money to family or friends - perhaps to help set them on the road to owning their own dream home.

Others may use the funds to consolidate existing debts, so they can reduce cost of living worries and enjoy time with their loved ones stress-free.

What are the alternatives to equity release?

For those who decide equity release is not for them, but who still need to find a sum of money to meet their retirement goals, the main alternative is to downsize to a less expensive property.

As mortgages can be more difficult to obtain without an income, they would usually need to be able to buy this home in cash. This option has the advantage of being debt-free, though it does mean saying goodbye to their existing home which may be difficult for some.

For those determined to stay in their home, they could decide to take a lodger - though they will need to be comfortable sharing their space with someone else.

It is also possible to fund retirement through a loan, or to reduce monthly outgoings with a retirement interest-only mortgage – though these will both require interest to be paid.

There is plenty to think about when it comes to your retirement options.

For those who are considering equity release, it is important to speak to a professional advisor such as those at Age Partnership. They will be able to explain the different products in detail and talk through any concerns.

They provide initial advice for free and without obligation. Only if you choose to proceed and your case completes would a fee of £1,795 be payable.

Equity release may involve a home reversion or a lifetime mortgage, which is secured against your property. To understand the features and risks, ask for a personalised illustration.

It is a requirement of equity release that you must repay any existing mortgage that you may have on your home, but you can use some of the money that you release to do this.

The money that you release, plus accrued interest, will be repaid when you die or move into long-term care.

Advice is required before proceeding with equity release.

To find out more, or request your FREE guide, click here.

*Based on volume of plans, ISS data Q1-Q3 2022. Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB. We offer a range of equity release products from across the market.