How Does Equity Release Help Improve Retirement Lifestyle?


To maintain a comfortable lifestyle after retirement, you might sell a portion of your home if you plan to stay in the same house for a long time.

The most common dilemmas of retirees are:

How to boost income without a job?

How to grab a fulfilling deal for a car on finance with bad credit?

But by tapping into the very asset they own- their home, they can boost their income.


Let’s first understand equity release.

What is Equity Release?

Equity release is all about selling a part of a home/ property that one legally owns to earn a regular income. Equity release allows the homeowners to receive a lump sum or regular income as a loan based on the property. The loan thus taken does not require to be paid until the one living in the home dies. But releasing the equity in the home may adversely affect the property’s value.

And it will lead to negative equity. Negative equity occurs when the total loan amount exceeds the total value of the property after equity release. As a result, some lenders have “no negative equity guarantee,” which means the lender cannot take more than the home’s value when the homeowner moves in for care.

The primary disadvantage of the equity release is–It does not provide the homeowner with the complete value for the house. The individual receives far less money than if they sold the house on the open market.

When Should One Consider Home Equity Release?

 If you own a home and are looking to have more money at hand for meeting your urgent requirements and secure comfortable self-employed car finance in the UK, then you can consider home equity release. But before that, here are the complete eligibility criteria mentioned for the same:

  • You are 55 years of age or more and looking to boost your finances.
  • You are 55 years of age or more and looking for increasing income and pension from other sources, like raising equity in the home.
  • You own a qualifying property in the UK.
  • The property is worth over £700000 in the UK.
  • You have enough funds to support your retirement apart from the home equity to maintain your lifestyle. You can consider home equity release.

Thus, most people reaching retirement age may be fortunate enough to grab 100% equity in the property if the property is mortgage-free. 

How Many Elements of Equity Release Are in Prevalent?

There are two principal types of home equity release:

  1. Lifetime mortgage
  2. Home Equity Plan

Lifetime mortgage

A lifetime mortgage is a loan that one gets against the home’s value. You receive a cash-free lump sum to receive as you wish to, enjoy planning a birthday or secure some funds for a car on finance with bad credit repayments. You can receive up to £10000 tax-free lump sum amount. And you don’t have to pay any repayments for the same. 

It means you can access the cash to support your post-retirement life goals without worrying about repayments. But before going for this, make sure you don’t have an existing mortgage lending or any other loan like self-employed car finance in the UK. First, they have to be paid in full to secure a lifetime mortgage on home equity.

The loan is paid against the home’s value when the one living in the house either dies or transfers to a new place for treatment and health care. If the beneficiaries wish to pay by selling the estate they own, they can do so. It is here that no negative equity works.

The lenders may never demand more than the value of the home. As compound interest accumulates on loan, you may have to pay more than the value of home. Here, one can borrow up to 20-50% of the total value. The lifetime mortgage is of two types:

a)      Interest roll-up mortgage

In this, you receive regular payment or lump-sum based on the property value, and the interest is added to the loan. You don’t have to pay any repayments for the loan. You may repay the loan by selling the property.

b)      Interest paying mortgage

In an interest-paying mortgage, you need to pay the payments monthly or ad hoc. But here, the monthly payments are cheaper, and thus, you could borrow more amount on your home’s equity.

Home Reversion Plan

In a home reversion plan, one sells a part of the complete property to a company in exchange for the tax-free cash lump sum or a regular income with a guaranteed lease to live in the property rent-free for as long as one wishes to.

But in this case, you don’t own the property if you sell the complete portion to the company. Thus, if you retain the ownership of the property or a part, you could benefit from the property value increase. In this, you also have a “no negative equity guarantee”.

In this, you only get up to -20-60% of the whole part of the market value on the property. The older you are m, the more percentage you get on the home reversion plan. And therefore, it is best suited for people aged above 70 years of age.

While lump sum gives you the freedom to manage money and income and the security of receiving regular payments, it is generally beneficial to have the best of both worlds. And if you are considering instant car finance approval with a good credit score, it is the best option. It means contracting your lender to provide the best income and lump sum mix for security and channelizing flexibility.

Top Reasons Equity release is best for post-retirement life

There are multiple reasons apart from multiplying your home’s value if you choose to go for equity release:

  • With a lifetime mortgage, you could benefit from a future increase in the property.
  • You don’t need to pay repayments in a lifetime mortgage while you loan the property or a part of it.
  • You can receive a lump sum or regular payments, monthly for meeting your urgent requirements or retirement goals like planning a holiday or taking self-employed car finance in the UK. You can utilise the borrowed money to your desire purpose.
  • The sums released on the property are tax-free.
  • You do not have to pay the inheritance tax.
  • You could get 100% value of the property if the property is mortgage free under a lifetime mortgage.
  • A negative equity guarantee scheme avoids passing on the loan to your loved ones or beneficiaries.
  • If you choose to move home in the future, you could transfer the equity to that home.

Therefore, equity release is good for retirement funding and improving lifestyle. But as they say, every concept has its downsides as well. Let’s quickly analyze the same as well.

Reasons Equity Release might not be a good idea

Yes, equity release is not for everyone, particularly when you are 55 or above aged and do not require enough money to meet your expenses.

An equity release helps you provide funds for equity in the home. Still, if you leverage other grants like retirement benefits or pensions and meet your needs, you probably don’t want to stake your home’s portion or home as equity to gain funds from lenders.

Thus, depending on your situation, mortgage lending can be an expensive way to fund your post-retirement needs or obligations like- taking the car on finance with bad credit. Here are some reasons that you would like to consider before selling equity in the property you own:

  • In equity release, an individual ends up paying more money than the total value of the property.
  • The value an individual receives on the property for the portion from the creditors is lower than what one gets from selling the same on the open market.
  • If anyone cannot make the repayments for long, the lender may seize the portion of the property that an individual sells as equity.
  • Once you enrol for equity release, you can no longer leverage the benefits you get like pension, grants, etc. And hence it could affect your instant car finance approval drastically.
  • Equity release is a non-reversal deal, and hence, if you wish the same, it could lead to penalties for ending the plan early.
  • The negative aspect of equity release is that you may not receive the complete value of the property. Thus, discuss it with your family first or a financial advisor before going for equity release.

However, you may receive benefits for a lifetime mortgage, but it could affect your long-term care plan if you expect to increase nursing support. The expenses of managing debt alongside medical expenses might not be a moral decision.

So, should I Go for Equity Release?

Homeowners can release equity to meet their urgent day-to-day needs independently, but this is an irreversible decision. If you are getting enough support from grants, pensions, and other benefits and don’t feel the need to raise equity in the home, you should not do it.

On the flip side, if you are above 55 years of age and finding it hard to meet expenses along with gaining pension and other benefits, you could raise equity in the home and secure 20-60% of the market value of the home as monthly payments or lump-sum.

Once you choose equity financing, you probably cannot secure the right to other benefits or government grants that you used to. To make an informed decision, consult a financial advisor. 

Leave a comment

Your email address will not be published. Required fields are marked *

Apply now