Equity release to enjoy a better retirement

How a plan could help you achieve your retirement goals

Written in line with our editorial policy.

Later life homeowners worried about a reduced income in retirement could use an equity release plan to boost their finances and enjoy a better lifestyle. It isn’t for everyone of course, so taking the time to make the right decision is vital.

In this guide, we’ll take a look at how equity release could help you to achieve a better retirement. We’ll be discussing the following to help you understand this increasingly popular financial option: 

• Millions face a shortfall in retirement income.
• What is equity release?
• Tailor equity release to your retirement wants and needs.
• Examples of how equity release can help in retirement.
• Equity release risks to consider.
• Talk to an equity release adviser.

Once you have read the following guide, why not speak to a specialist adviser about unlocking tax-free cash from your home? Call 0808 178 3055, or request a call back to arrange a no-obligation appointment.

Millions face a shortfall in retirement income

Adjusting to a smaller income can be one of the hardest pills to swallow in retirement. According to a 2021 report by the Pensions Policy Institute, a quarter of people approaching retirement – the equivalent to five million people – are at risk of falling short of the income they need. 

The report found that a low state pension, increasing unemployment and workplace pension schemes reliant on employee contributions are all factors leading to a generation being left without adequate savings in retirement. 

Some homeowners in later life take on part-time jobs to boost their retirement income, but if that isn’t an option for you, how could you achieve a more financially secure retirement? One option you might want to consider is equity release.

What is equity release?

Equity release enables UK homeowners aged 55+ to access some of the property wealth you have accumulated over your lifetime.  It allows you to release some of the tax-free money – your equity – from your home, without having to make any mandatory monthly repayments.

When you pass away or move into long-term care, your home is put up for sale and the money used to settle your equity release loan plus interest.

Popular reasons for equity release include paying off the mortgage, gifting to family members, taking holidays in retirement and making home and garden improvements. 

Whilst there are many flexible options and features to choose from, there are two main types of equity release plan. These are lifetime mortgages and home reversion plans. 

See our blog featuring examples of equity release for further information and case studies on how equity release is helping homeowners across the UK.

Want to know how much you could unlock from your home? Check your eligibility and get your free quote now!

Tailor equity release to your retirement wants and needs

Equity release has come such a long way in recent years. Today’s plans offer more flexibility and choice than ever before. Here are some of the ways you can tailor your equity release plan to your unique retirement wants and goals:

Take a cash lump sum

Many of us are looking for a way to access a lump sum to achieve our immediate financial goals. With a lump sum lifetime mortgage, you can unlock a tax-free cash lump sum to make those home improvements, book the luxury trip or pay off your existing mortgage. 

Top-up your finances with a drawdown plan

If a regular top-up to your finances is what you need then a drawdown lifetime mortgage could work for you. This allows you to ringfence a cash reserve that you ‘draw down’ money from as and when you need it. Perhaps you have savings to use when you retire, but need a cash safety net for when that runs out? Equity release can provide real peace of mind in retirement.

Make voluntary payments on your plan

Today’s equity release plans come with the freedom to make voluntary penalty-free payments up to a certain amount each year. Your plan’s annual cap depends on your provider and the plan you choose, but up to 10% of your overall loan amount is fairly standard. Or, choose an interest-only equity release plan to prevent your loan from growing in size for as long as you can afford the payments.

Move or downsize in later life

If you choose an equity release plan approved by the Equity Release Council, you will have the freedom to move house at any time. Providing your new home meets your lender’s criteria then there are no penalties for moving house. This guarantee is so important for those of us who might want to move closer to our family in later life, for example.

You can read about more equity release guarantees in our article.

Examples of how equity release can help in retirement

Paying off an interest-only mortgage

You may be able to use equity release to pay off an interest-only mortgage. Perhaps you find the monthly interest payments too much of a stretch for your retirement finances? Or maybe your mortgage term is coming to an end and you have no means of repaying it?

If you don’t have savings or investments to pay off the capital from your interest-only mortgage, or want to end the monthly interest payments, you may be able to use an equity release lifetime mortgage. You can continue to live in and enjoy your home without the burden of monthly payments. 

Taking a phased retirement

Some people choose not to take full retirement straight away. You may not be able to afford to stop working altogether. Or it could be that you want to reduce your hours, perhaps for health reasons, but don’t want to give up your working life altogether just yet.

By taking smaller amounts from your home equity as and when you need to, a drawdown lifetime mortgage could help you top up your income when you reduce the hours or days that you work. 

A plan can also be used to bridge the gap until your State Pension or other pension income begins, should you wish to take retirement early.

Making repairs to the house

Roof or fence repairs after a storm, the boiler packing in or damp in your walls can all be very expensive to repair, especially for those of us living on a pension income. Making home and garden improvements are one of the most popular reasons for arranging equity release. 

On top of any repairs you need to make, you might choose to extend your home or make it more accessible for later life living. You might even want to install a new bathroom or kitchen to get the most from your home in your retirement.

Enabling travel in retirement

Many of us dream of travelling more in retirement, which is why holidays are one of the most popular reasons for equity release. Not only is a good trip away good for your stress levels and mental health, but exposure to all that fresh air, fresh food and culture is fantastic for the body and brain too. 

If you really want to get out there and travel in retirement, a caravan could be an ideal purchase! From travelling the length and breadth of the UK, to taking trips across the whole of Europe; you could get a lot more out of your retirement years thanks to equity release.

Equity release risks to consider

As with any financial product there are benefits and drawbacks to consider. Some of them, such as the rate at which compound interest can accrue, may be very important to you. Others may be less of a concern. It very much depends on your individual situation and your financial goals for the future.  

Here are a few drawbacks to equity release that you will need to consider before making a decision:

How much you owe can increase quickly over time. Compound interest is charged on lifetime mortgages. This means interest is charged on the original loan amount plus any interest that has already been accrued. As a result your overall loan can grow quite quickly, making it an expensive way to borrow money. However, you can make ad hoc voluntary payments on your plan to prevent or minimise interest building up, or arrange an interest-only plan.

Early repayment charges can be costly. If you choose to repay your plan back early or want to repay more than your lender’s annual penalty-free limit,  you may have to pay an early repayment charge (ERC). These can be substantial depending on how long you have had your plan and what your lender’s ERCs are.

May affect your entitlement to state benefits. Arranging equity release to boost your income could affect your eligibility for some means-tested state benefits or state-funded home care. 

Considerations for future moving. If you choose to move house or downsize in the future then you may have to repay some of your equity release plan depending on your new home’s value. Your new property will also need to meet your lender’s criteria.

The amount you leave for your family will be less. There may be little or no inheritance available for your family once your loan plus interest is repaid when you pass away or move into long-term care. You can select Inheritance Protection to guarantee they inherit from you, but this will reduce the amount you can borrow.

For a full explanation of the pitfalls of equity release, read our article on the subject.

Talk to an equity release adviser

The best way to find out if you could be eligible for equity release is to speak to an equity release specialist like our selected advisers. 

They will use their years of experience in the equity release industry to search and compare plans on your behalf. They’ll also help you understand which type of plan will work best for you and your family. 

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 release.

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