Homeowners find unique opportunity in equity release

Higher interest rates and a cost of living crisis are changing the equity release landscape, as people look to tap into the value of their home to ensure they and their family are comfortable.

Substantial house price growth in recent decades and the biggest cost-of-living crisis in 40 years has left many people in the Baby Boomer generation in a unique predicament. They own a very valuable property, possibly even outright, but at the same time they are struggling to make ends meet, with energy bills having skyrocketed and food price inflation exceeding 16%.

Retirees who previously would have sought to downsize and buy a cheaper home to free up funds for their retirement are now having second thoughts due to the excessive costs involved in moving. From seller and solicitor fees to stamp duty and moving costs, not to mention the money often required to get a new home to how you want it, these costs can reach the tens of thousands. When the goal of moving is to free up money, it can end up being counterproductive.

Fortunately, an alternative option to tapping into the value of your home, without actually having to move or give up ownership, is available and it has grown increasingly popular over the last decade as it has become a regulated financing product for homeowners. Now, equity release is presenting unique opportunities for over-55s looking for ways to fund their lifestyle in retirement. 

What is equity release?

Equity release is a way homeowners can draw a lump sum or regular sums from the value of their home while continuing to live in it. There are two options: lifetime mortgages and home reversion. This article focuses on lifetime mortgages, which are loans that don’t need to be paid back until you die or move into care, after which the house is sold to repay the lender. You retain ownership of the house until that point. Any surplus funds from the sale go to your beneficiaries.

Home reversion is when you sell part or all of your home to the loan provider, who gives you the legal right to continue living in the property. At Ascot Lloyd we deal only with lifetime mortgages as we believe you should be able to access capital without giving up ownership of your home.

How does equity release work?

With lifetime mortgages, you needn’t make any repayments on the money you receive unless you choose to. Interest on the money is rolled up and compounded each year, and when you die or move into long-term care the total sum is repaid from the proceeds of your house sale.

Most products allow you to ring-fence some of the value of your home as inheritance for your family, and those offering the ‘no negative equity’ guarantee give you complete assurance that you won’t leave your family in debt even if what you owe exceeds what your home is sold for.

“The easiest way I explain equity release to clients is that it’s exactly the same as a normal mortgage except you don’t make payments for it, so your balance gradually goes up over time instead of down,” says Marie Dalrymple, equity release and mortgage specialist at Ascot Lloyd.

Is equity release safe?

If you feel a hint of distrust towards equity release, it's probably because you recall some of the scary stories of people who bought into unregulated schemes in the late 80s to early 90s only to face spiraling debt and negative equity due to falling house prices and variable interest rates.

Though these stories may still stick in your mind, the reality is equity release is a very different proposition today. It is now fully regulated by the Financial Conduct Authority, while the introduction of the Equity Release Council in 2012 has ensured high standards of conduct among companies offering equity release products, and robust safeguards for homeowners.

As a result of these crucial changes, you’ll never owe more than what your property is worth when it’s sold. ‘Security of tenure’, which, protects your right to stay in your home for life.

“Equity release is safe,” says Marie Dalrymple. “One of the biggest misconceptions I see is people thinking they’ll no longer own their home. There are other products which do involve you selling part of your home to the lender, however with lifetime mortgages you retain 100% ownership.”

The right equity release plan

Equity release has become so popular because it allows you to do something meaningful with an asset you own, without giving it up. Beyond simply funding people’s lifestyles in retirement, other use cases include supporting children, such as helping them get on the property ladder. Equity release funds are not subject to any taxation because it is a loan, not a form of income.

“Given the current climate, however, we do see the clientele for equity release evolving somewhat as people realise it can be an effective way to help them deal with other problems says Dalrymple.

“It’s crazy really that people living in expensive homes are cold because they’re scared to turn on the heating or in pain because there’s a two-year wait for their hip operation on the NHS. Why suffer when you don’t have to? Especially among people who don’t have anyone to leave their property to, I’ve seen a notable increase in utilising equity release to free up money for private healthcare, or just to enjoy life. It makes a lot of sense. Nobody wants to struggle, or see their children struggle, when they can just release equity in their home in a very protected way.”

Equity release advice

People who are averse to any kind of debt in retirement, even with the built-in protections of lifetime mortgages, might be asking is equity release really a good idea? Despite the benefits, it's not for everyone and there could be other options to equity release which better meet your needs and objectives. Your Ascot Lloyd independent financial adviser will review your individual circumstances and present the information you need to make the right equity release decision.

Ascot Lloyd offers independent advice on all aspects of equity release and has semi-exclusive access to some of the lowest rates on the market. If you’d like to find out more, our team of experienced independent financial advisers can advise on the range of mortgage and equity release options available to you. Click here to book a free call back.