For some in retirement, it might be appropriate to access equity from their house, which is often the largest valued asset. Cost of living pressures are just one of many reasons why homeowners are choosing to “cash in” on years of wealth accumulated in their homes.
According to the Equity Release Council, more than 76,000 homeowners either entered into new or additional borrowing in 2021. Total lending to homeowners grew by 24% year on year. The majority of these entering equity release used a “lifetime mortgage”.
So what is a lifetime mortgage?
Lifetime mortgages can give homeowners aged 55 or older access to some of the money tied up in the value of their property. A lifetime mortgage isn’t that different from a standard mortgage. It is a loan secured against the value of your main residence property on which interest is charged. However, unlike a standard mortgage, there are no monthly instalments to pay.
With a lifetime mortgage, the interest is added to the loan to be repaid on the death of the borrower or if the borrower goes into permanent residential care. The loan is usually repaid from the proceeds of the sale of the property.
Here are some common reasons why homeowners release money from their homes.
- Adapting the house to enable independent living.
- Renovating or refurbishing such as a new kitchen or bathroom.
- Topping up retirement income.
- Paying for care.
- Giving family money for a house deposit, university fees or other major life events.
- Inheritance tax planning.
- Paying off debt.
- Large discretionary one-off spending such as a new car, or world cruise.
Whilst taking out an equity release scheme might prove to be the right option, it is important to consider alternatives options, these can include:
- Downsizing and buying a less expensive property.
- Using savings or other investments.
- Speaking to the local authority, particularly if extra cash is required to pay for essential repairs or home improvements. They may be able to provide you with some financial assistance, or a grant.
- Checking eligibility for state benefits.
- Considering a home reversion plan.
This article should not be construed as a personalised recommendation. The most suitable solution for you will depend on your own personal circumstances. No action should be taken without seeking further formal advice.
MHA Moore and Smalley is the trading name of Moore and Smalley LLP. Moore and Smalley LLP is regulated by the Financial Conduct Authority, FCA registration number 448716.
