Equity release explained: A lifeline for older homeowners

For many older homeowners, their property represents their most significant asset.

As retirement approaches and living costs rise, accessing the wealth tied up in their homes can become a crucial financial strategy.

Equity release schemes offer a way to do just that, providing a tax-free lump sum or regular income without having to sell and move out.

However, it’s a complex financial product, and understanding the intricacies is vital before making any decisions.

According to Bert Hofhuis, founder of EveryInvestor and a leading figure in later life financial planning, equity release is more than just accessing cash from your home — it’s about making informed decisions that support long-term security. With extensive experience in equity release, lifetime mortgages, and wealth management, Hofhuis is committed to helping older homeowners navigate the complexities of these products with clarity and confidence.

What is Equity Release?

Equity release allows homeowners aged 55 and over to unlock a portion of the value tied up in their property.

This can be achieved through two main types of schemes:

• Lifetime Mortgage: This is the most popular type. You borrow money secured against your home, but no repayments are made until you die or move into long-term care. The interest accrues on the loan and is added to the balance, meaning the amount owed grows over time.
• Home Reversion Plan: You sell a portion or all of your property to a provider in exchange for a lump sum or regular income. You retain the right to live in the property rent-free for life, but you will own a smaller share (or none at all).

Who is Equity Release Suitable For?

Equity release can be a valuable tool for those who:

• Are facing financial difficulties in retirement.
• Want to supplement their pension income.
• Wish to make home improvements or adaptations.
• Desire to help their children or grandchildren financially.
• Want to enjoy a more comfortable lifestyle in later life.

Benefits of Equity Release:

• Tax-free lump sum or regular income: The money released is tax-free and can be used for any purpose.
• Remain in your home: You can continue living in your property for life or until you move into long-term care.
• No monthly repayments: With a lifetime mortgage, there are no required monthly repayments.
• Flexibility: Some plans offer flexible options, such as drawdown facilities or the ability to make voluntary repayments.
• Peace of mind: Knowing you have access to funds can provide financial security and peace of mind.

Risks and Considerations:

• Reduced inheritance: The amount of inheritance you can leave to your beneficiaries will be reduced as the loan and accrued interest are repaid from the sale of the property.
• Compounding interest: The interest on a lifetime mortgage rolls up, meaning the amount owed can grow significantly over time.
• Early repayment charges: If you decide to repay the loan early, you may face significant penalties.
• Impact on benefits: The money released could affect your eligibility for certain means-tested benefits.
• Complexity: Equity release schemes can be complex, and it’s essential to seek professional advice.

Choosing the Right Equity Release Scheme:

Choosing the right scheme depends on individual circumstances and financial goals. Factors to consider include:

• The amount of equity you want to release.
• Your age and health.
• Whether you want a lump sum or regular income.
• The features and flexibility of different plans.

Seeking Professional Advice:

It’s crucial to seek independent financial advice from a qualified equity release advisor before making any decisions.

They can help you understand the different schemes available, assess your individual needs, and ensure you choose the right product for your circumstances.

They can also explain the potential risks and benefits in detail.

Regulation and Consumer Protection:

The equity release market is regulated by the Financial Conduct Authority (FCA).

This provides consumers with a level of protection, including the right to a 14-day cooling-off period after signing the contract.

All equity release providers must also be members of the Equity Release Council, which sets standards and provides a code of conduct.

Conclusion:

Equity release can be a valuable financial tool for older homeowners, providing access to much-needed funds while allowing them to remain in their homes.

However, it’s essential to carefully consider the risks and benefits and seek professional advice before making any decisions.

By understanding the complexities of equity release, homeowners can make informed choices and ensure they are making the best decision for their future financial security.