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Equity release featured on BBC: house rich cash poor

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By Clare Yates • 16th October 2024 • 4 min read

Key takeaways from BBC’s discussion on unlocking property wealth

Written in line with our editorial policy.

Equity release was recently featured on BBC One’s Morning Live. The segment explored how equity release could provide a lifeline to homeowners aged 55+ struggling with limited savings despite owning valuable homes. 

With house prices continuing to rise, but household budgets under pressure, the presenters acknowledged that equity release could be an attractive option for some people. However, the programme stressed the importance of making an informed decision, as equity release is a significant financial commitment with long-term implications.

During the 3 October segment on Morning Live, both the main types of equity release plan – a lifetime mortgage and a home reversion plan – were summarised by finance expert Laura Pomfret. 

When discussing the most common option, a lifetime mortgage, Laura explained how homeowners can opt to receive a lump sum or smaller payments over time. She also talked about how interest can either be paid regularly or allowed to ‘roll up’. Leaving interest to roll up means that as well as the loan itself, the accrued interest is repaid when the homeowner either passes away or moves into long-term care. This is typically funded through the sale of the customer’s property.

The less common alternative, a home reversion plan, was also discussed. This option allows homeowners to sell a portion or all of their property to the provider, with the provider paid back via the proceeds of the sale of the property. Again, this happens when the customer passes away or moves into long-term care.

Equity release considerations

The programme highlighted several key factors to consider before opting for equity release. One major consideration they discussed is the impact on benefits. This is because a person in receipt of a cash lump sum could find their eligibility for means-tested benefits – such as Pension Credit – is affected. 

Another point raised by Laura was that equity release should be seen as a last resort for covering essential costs, rather than being used for discretionary spending like holidays or gifting to family members. However, these purposes are actually two of the most popular reasons for homeowners unlocking some of their property wealth.

Ultimately, it’s up to the individual how they choose to spend the cash they release, as equity release can be used for almost any legal reason. While some may prioritise essential costs, others see it as an opportunity to enjoy their retirement, whether by funding dream holidays, helping family members financially, or making home improvements. The key is to carefully consider personal circumstances and ensure that any decision aligns with long-term financial goals.

One of the presenters also raised a common misconception, suggesting that after a homeowner’s death, it is the family who takes on the equity release loan. However, it’s actually the estate that must settle the debt, and this is typically done by selling the property. This is explained in greater detail in our blog “What happens to equity release when you die?”

Importantly, homeowners who opt for an Equity Release Council (ERC) approved plan can take comfort in knowing that the “no negative equity guarantee” applies. This ensures that the loan will never exceed the value of the home, so your family won’t be left with any additional debt beyond the sale proceeds. You can read more about the Equity Release Council’s five guarantees here.

Best practices and alternatives

The show segment emphasised the importance of seeking regulated financial advice before making any decisions. Laura pointed out that reputable advisers, particularly those who are members of the Equity Release Council, will ensure that homeowners go through a structured financial advice process. This involves assessing whether equity release is the right option and exploring alternatives.

Alternatives to equity release, such as downsizing, were presented as viable solutions for some homeowners. While moving to a smaller home may be emotionally challenging, it can free up funds and even lower energy costs. 

Laura said: “I’m giving people permission to downsize and say ‘thank you to that nice big home that’s looked after us’, but actually a smaller home is more manageable, maybe more energy efficient, maybe better for accessibility needs.”

Renting a room under the government’s Rent a Room Scheme, which allows up to £7,500 in tax-free income annually, was also suggested as a way to generate income without releasing equity.

Additionally, the segment urged viewers to consider other assets like pensions, savings, or investments that might provide extra financial support. Consulting debt charities or checking for unclaimed benefits were also advised as alternatives to releasing money tied up in the home.

Making the right decision

Equity release can be a valuable tool for certain circumstances, but it’s a big financial step that requires careful consideration. As the show highlighted, speaking to family about the decision is crucial, as it can affect inheritance plans. 

Ultimately, with proper advice and by working with advisers who follow best practices, such as those regulated by the Financial Conduct Authority (FCA) and members of the Equity Release Council, homeowners can make more informed and secure choices about their future. You can check if a provider is a member of the Equity Release Council here.

For your peace of mind, our selected advisers will only recommend plans from providers who are members of the Equity Release Council.

Our selected equity release advisers are here to help you explore your options and find the best plan for your needs. If you’d like to speak to them, please call 0808 178 3055, or request a call back for a time that suits you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

Sources:

Equity release could provide a lifeline to those struggling with limited liquid assets: Why equity release mortgages could unlock some cash tied up in homes. BBC. Accessed 14 October 2024.

Rent a Room scheme offers £7,500 tax allowance. Rent a room in your home. gov.uk. Accessed 14 October 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

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