Is Equity Release A Good Idea?

“Is equity release a good idea?” is a question that we hear time and time again. Plans of the past and general misconceptions have led to many approaching the idea of equity release with significant caution and even negativity. While this type of mortgage must be considered thoroughly and in relation to your personal circumstances, to write it off is to potentially miss out on a great way to unlock some financial freedom later in life.

In fact, if you’re a homeowner aged 55 or over, equity release can be a great way to make the most of the value of your home by releasing some of that value as tax-free cash. The key to understanding whether this process could be a good idea is therefore by understanding the pros and cons of equity release and how they might apply to you. We’ve put together this blog to help you through that process.

What is equity release?

Later on in life, your home can be the key to unlocking cash to put towards your goals and ambitions. Many people will downsize to do this, moving to a smaller property and keeping the difference in property prices to spend as they wish. However, equity release is an alternative growing in popularity as it allows you to stay in your current property while still enjoying its value.

The most common type of equity release in the UK is a lifetime mortgage, which involves borrowing a tax-free cash sum from the value of your home. You continue to own the property and live there, with the amount borrowed plus interest repaid when you pass away or move into long-term care and your home is sold. This type of borrowing and way of repaying the loan has a number of subsequent pros and cons, and exploring them in detail will help you form your own answer to the question of “is equity release a good idea?”.

Pros of equity release

Equity release has a number of advantages which make it a good fit for many borrowers aged 55 and over, including: 

Tax-free cash to spend on your goals

One of the major advantages of equity release and reasons why it is a good idea in many circumstances is that it allows the borrower to access cash to spend on their goals. After all, pensions and savings no longer stretch as far as they used to, so releasing some of the value of your home can unlock the financial freedom you deserve and ensure you get to make the most of your property value on your own terms. 

The tax-free cash released could be used to achieve a number of later-in-life financial goals, including paying off your mortgage, making home improvements, enjoying travel, or supporting family members with house deposits and school fees. 

Flexible repayment options

Unlike a conventional mortgage, there is no requirement to make payments when releasing equity with a lifetime mortgage. Instead, the loan amount and interest will simply roll up over time at a rate fixed for life. However, you do have the option to make payments towards the interest if you want to, and this can be very advantageous as it will reduce the overall cost of borrowing in the long run. A fully qualified adviser should always be able to explain clearly how interest will accrue over time, helping you make an informed decision about whether to make payments or let it build. 

No-negative-equity guarantee

One of the most reassuring features of modern equity release products is a no-negative-equity guarantee. This essentially means that no matter how much property prices change in the future, you and your estate will never owe more than the value of your home when it is sold. 

Freedom to stay (or move!)

Because you retain full homeownership when releasing equity with a lifetime mortgage, this type of borrowing gives you the freedom to both access your home’s value and continue to live there. Unlike alternatives such as downsizing, you can enjoy your later years in familiar surroundings for as long as you wish. However, should you get the urge to move later on in life, you still can! Most lifetime mortgage products can be ported to a different property provided that the property meets the lender’s requirements. Equity release can even be used to help facilitate a move when you might otherwise struggle to be eligible for a conventional mortgage product. 

Cons of equity release

Like all financial products, equity release does have its downsides which must be seriously considered before making any decision about its suitability for your circumstances. These cons include: 

Impact on estate

For many, the main drawback of equity release is its impact on inheritance. By taking from your home’s value now, there will naturally be less available for you to leave for loved ones in the future. You can mitigate this by gifting a portion of the released cash during your lifetime, but you must then note that the recipients may then have to pay inheritance tax if you die within seven years. Careful planning and consideration are key to both enjoying the money now and preserving what you can leave behind if this worries you. 

Can affect benefits entitlement

Another potential downside of equity release is that it can also have implications for means-tested benefits. You must consider whether this will apply to any benefits you are entitled to and seek professional advice to clarify any current and possible future impact. 

Eligibility criteria differ from a standard mortgage

The lack of required repayments can be a major positive when it comes to equity release and means that the eligibility criteria are different to a standard mortgage. For many, this means they are eligible for equity release when a standard mortgage is not suitable. 

However, equity release lenders do still have strict criteria in their own way. They’ll consider factors such as predicted property value, your home’s location, and even your health. Understanding these requirements ahead of time is essential in determining if it’s a suitable route for you.

Understand if equity release is right for you with Mewstone Later Life

With a wide range of pros and cons to weigh up when it comes to equity release, specialist advice is crucial. At Mewstone Later Life, we can help you to understand all of the options available to you if you want to unlock the funds you need to enjoy your later years fully. We pride ourselves on the quality and transparency of the advice we provide and can talk you through exactly how equity release might work in your individual circumstances. 

Simply call us on 01752 922549 or visit our dedicated equity release page to book a call with our award-winning later life mortgage advisor to discuss your situation and find out what’s possible.