Where does equity release fit into later life financial planning?

Could this financial tool help you achieve your retirement goals?

Written in line with our editorial policy.

If you need a little boost to help you meet your financial goals, equity release could help. It enables homeowners aged 55+ to access their property wealth and enjoy greater financial freedom in retirement.

Later life financial planning is all about taking steps to plan short and long-term strategies to achieve your financial goals. Perhaps you dream of being mortgage free or taking early retirement? Or maybe you’d like to book a bucket-list holiday?

This article explores where equity release fits into later life financial planning, its benefits and drawbacks. We’ve included some case studies to explain how some people may be using equity release as part of overall financial planning.

We look at:

• What is equity release?
• Benefits and drawbacks of choosing equity release
• Incorporating equity release into financial planning
• Case studies

What is equity release?

Equity release is a way for homeowners aged 55 or over to access the value of your property to help you meet your financial goals. If considering equity release, financial planning can involve home reversion plans or lifetime mortgages. 

• Lifetime mortgages involve borrowing money against the value of the property. With this plan, the loan plus interest is typically repaid when your home is sold after you pass away or move into long-term care. 
• Home reversion plans involve selling a portion of the property to a provider in exchange for a lump sum payment or a regular income. There is no interest on this loan, but you will receive less than the market value for your property. You stay in your home as a tenant, though paying no rent, until you pass away or move into long-term care.

If you’d like to explore your options for equity release, please check your eligibility to get an indication of how much money you could release. Alternatively, talk to our friendly consultants on 0808 178 3055, or request a call back at a time that suits you.

Benefits and drawbacks of choosing equity release

If you have financial goals that require a cash injection in order to achieve them, then you may be considering an equity release plan. The main benefit of equity release is that it provides homeowners with a way to access the value of their home without having to make monthly repayments. This can be particularly useful for individuals who are ‘asset-rich, cash-poor’. 

Unlike some other forms of borrowing such as a remortgage, the money you unlock can be spent however you wish. However if you are financial planning, equity release does have its drawbacks. The interest rates may be higher than those of traditional mortgages – and the rate at which compound interest accrues can make it an expensive way to borrow money. 

In addition, a plan will reduce the value of your estate and may affect your eligibility for some means-tested benefits. You can read more about the pros and cons of equity release.

Incorporating equity release into financial planning

When considering equity release in financial planning, it is important to consider the following factors:

• The impact of equity release on inheritance. By its very nature, equity release will impact the amount of money you leave for your family. This is because it reduces the value of your estate and interest can build up on your plan quite quickly. It is important to consider the impact on your family members and make sure they are aware of the decision.
  
• Impact on benefits. The income you receive may affect your eligibility for some means-tested state benefits. It is important to seek professional advice on the tax implications of equity release before making a decision.
• Possible alternative options. Equity release is not the only option for generating income or accessing cash from the value of a property. Alternatives to equity release include downsizing, arranging a short-term loan, or using savings.
  

Case studies

Here are some practical examples of how equity release can fit into financial planning for different scenarios:

Lifetime mortgage to boost retirement income

After owning their home for over thirty years, an elderly couple have a valuable, mortgage-free property but limited retirement income. They decide to use a lifetime mortgage to top-up their regular income with a drawdown lifetime mortgage to improve their lifestyle. They can now enjoy their retirement and maintain their lifestyle without selling or downsizing their property.

Paying for home improvements

A retired couple have a property in need of significant repairs and improvements, but they do not have the funds available to cover the repair costs. They look into a home improvements loan with their bank but cannot afford the monthly repayments. Instead of selling their home, they opt for a home reversion plan. 

They sell a portion of their property to a provider in exchange for a lump sum payment that they used to pay for the repairs and improvements. There is no interest on their loan and no monthly repayments to make. They can stay in their home as rent-free tenants until they both pass away or move into long-term care.

Providing financial help to family

A widow has a valuable property with a small mortgage remaining and a modest pension income. Her daughter is going through a divorce and is struggling to find a house to move into. After speaking to a financial planner, equity release is put forward as a way to pay off the mum’s small mortgage and help her daughter purchase a house of her own. 

The widow arranges a lump sum lifetime mortgage, pays off her mortgage and her daughter can receive her inheritance now, when she needs it most.

Speak to a specialist equity release adviser

In each of the above case studies, equity release achieves specific financial goals while allowing the homeowners to remain in their property. However, it is important to note that these case studies are not representative of all scenarios: your financial situation and objectives will be unique to you.

When it comes to equity release, financial planning goals and objectives need to be considered in the context of other options. The decision to use equity release as part of your later life financial planning should be made carefully. It is important to explore alternative sources of income before committing.

By working with our selected equity release advisers, you can receive tailored recommendations that will help you to meet your financial goals. This advice is free and without obligation: only if you go ahead with a plan will you pay a fee, which can be paid from the money you unlock.

If you’d like to explore your options for equity release, please call our friendly consultants on 0808 178 3055 or request a call back at a time that suits you and we’ll set up an appointment with one of our selected advisers. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.