Could equity release help renters become homeowners?

A potential solution for breaking free from renting

Written in line with our editorial policy.

High rental costs are making it increasingly difficult for renters to get a foot on the property ladder. Could equity release be a solution?

The dream of homeownership can feel increasingly unattainable as you get older. According to the Equity Release Council, 39% of renters expect to still be renting in retirement.

However, there is a potential solution that could help: equity release. This article explains how equity release could help older renters transition from renting to owning their own home without the burden of later life mortgage repayments.

We’ll be discussing:

• What is equity release?
• The deposit dilemma
• Impact of mortgage payments running into retirement
• How equity release could help
• Arranging a plan to help a family member buy a home
• Considerations before taking this step
• Speak to a specialist today

What is equity release?

Before exploring how equity release might help you buy a house, here’s a quick overview of how a plan typically works.

Equity release allows homeowners aged 55+ to unlock some of their property’s value without the need to sell or move. The most common type of equity release plan is a lifetime mortgage, where cash can be accessed as a single lump sum or as several smaller amounts over time.

One of the key advantages of equity release is that there are no mandatory monthly repayments. Instead, the loan, along with interest, is repaid when the last homeowner passes away or moves into long-term care.

While customers can choose to service the interest or make voluntary payments towards their loan amount each year, there is no requirement to do so.

Equity release is certainly not for everyone and its pros and cons should be carefully considered. But it does provide a potential solution to some financial challenges in later life – and that potentially includes being stuck with rent payments each month for the rest of your life.

The deposit dilemma

If you are currently a tenant in your home, saving for a deposit might feel like an impossible task. According to the Equity Release Council, private renters in England now spend an average of 34% of their income on housing costs, rising to as much as 57% for London renters. It leaves little room for saving, even for those with steady incomes, and it’s creating a significant barrier to homeownership.

Adding to the challenge, the Office for National Statistics reports that average monthly rent in Great Britain increased by 8.7% over the past year, reaching £1,307 in October 2024. For older renters reliant on the State Pension, this creates even more strain. At £11,502, the full new State Pension currently provides enough income to cover the average rent for just 8.5 months a year, based on average rents in England.

The rising rental costs have no doubt left many renters feeling frustrated, as the likelihood of home ownership slips further away. Now just 25% of renters believe they will be able to buy a home before retirement.

Impact of mortgage payments running into retirement

The issue for some older renters is that even when you do have most of the money needed to put down on a home, the prospect of arranging and paying off a mortgage in later life can be daunting. 

One concern with this is that some homeowners reach pension age with a small pension fund and an outstanding mortgage; might decide to use some or all of their pension savings to pay off the mortgage, leaving them with a low income for retirement.

Even mortgages scheduled to end at pension age reflect a shift from previous norms. In the past, many people had paid off their mortgage years before retiring, giving them time to top up their pension savings during the later stages of their career.

How equity release could help

The good news is that equity release offers a practical solution that could see you finally taking your first step onto the property ladder without having to make mortgage payments.

Here’s a little-known benefit of equity release: you may be able to arrange a lifetime mortgage (the most common form of equity release) on a property you don’t yet own, to help fund its purchase. 

If you have the majority of funds needed to purchase a home but have a shortfall, equity release may be able to bridge the gap, making homeownership possible.

This option may be ideal for you if:

• You’re aged 55 or older.
• You have most of the funds needed to buy a property, either through savings, coming into an inheritance, or perhaps the funds from a previous house sale or a divorce.
• You need access to funds to cover the shortfall of a purchase. Say for example you have 80% of the property value, but need additional funds to cover the remaining 20%.
• You want to avoid the financial burden of ongoing mortgage repayments in retirement.

It’s important to note that you cannot combine a lifetime mortgage with a traditional residential mortgage on the same property. However, a lifetime mortgage offers a flexible and stable solution tailored to the needs of older buyers.

If you are eligible, your equity release solicitor will work alongside your conveyancing solicitor to ensure the necessary funds are released at the time of purchase.

Arranging a plan to help a family member buy a home

Alternatively, for those aged 55 or older who already own their home, equity release can enable you to unlock some of the value in your property to gift to loved ones. This money could help a family member currently renting to put a deposit down on their first home.

For example, if a parent releases £30,000 from their home, this could provide a substantial deposit for a first-time buyer’s mortgage. That could significantly increase their chances of securing a property. 

Read more in our article: “UK homeowners use property wealth to help first-time buyers”.

Considerations before taking this step

While equity release can be a very useful financial tool, it’s important to consider all the benefits and drawbacks before making a decision. 

By its very nature, an equity release plan will reduce the value of your estate and the amount of inheritance you leave for family members. Therefore, it’s essential to have open discussions with your family and seek advice from a qualified financial adviser to ensure it’s the right decision for everyone involved.

On the other hand, it’s also worth noting that equity release plans are highly regulated, offering robust protections for homeowners. There are also options available which enable you to guarantee an inheritance for your family if you wish. 

Speaking to a specialist can help you explore all your available options and fully understand the implications.

Speak to a specialist today

For renters struggling to save for a deposit, equity release could provide the helping hand needed to finally step onto the property ladder. 

If you’re looking for a lifetime mortgage to help you or a loved one buy a house, speak to one of our friendly selected equity release advisers to explore your options and:

• Check your eligibility and assess if a plan is the best financial option for you.
• Work out how much of your prospective home’s value you may be able to unlock.
• Search for the most competitive equity release quotations.
• Explain the pros and cons of each type of plan you’re considering.
• Help you decide which plan best meets your individual needs and goals.
• Answer your questions, such as, “Can I use equity release to buy my first home?”
• Expertly guide you through every step of the process.

Our selected equity release specialists are ready to help you explore your options and find the best plan for your needs. Call us on 0808 178 3055 or request a call back at a time that suits you. 

Sources

39% of renters expecting to still be renting in retirement: Locked out: two in five expect to rent in retirement as confusion clouds options. Equity Release Council. Accessed 19 December 2024.

Average private rent in Great Britain was £1,307 in Oct 2024: Private rent and house prices, UK: November 2024. Office for National Statistics. Accessed 19 December 2024.

91,000 new mortgages arranged in Q4 2021 ran past pension age: Steve Webb: Should we be concerned about surge in mortgages running into retirement? Money Marketing. Accessed 19 December 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn