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How to access wealth that’s locked away in your home

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Are you considering how to access the wealth that’s locked away in your home? There’s more than one way you could release property wealth later in life.

There are lots of reasons why you may want to access the money that’s tied up in your home. Perhaps you want to use the money to fund retirement or help grandchildren get on the property ladder?

Your home may be one of your largest assets, so it could play an important role in your long-term finances. In fact, according to the Halifax House Price Index, the average home was worth almost £280,000 in August 2023.

If you want to unlock property wealth as you near retirement you usually have two main options – downsizing and using equity release. Both choices have pros and cons that you might want to weigh up.

2 useful advantages of downsizing

  • You can unlock property wealth without taking on debt

If you sell your current property and purchase a cheaper one, you could gain access to a lump sum without having to take on debt. If you have an outstanding mortgage, you’ll need to factor paying it off into your calculations.

  • You may be ready to search for a new home

As your needs change, you might be looking forward to moving to a new home. Perhaps a property with fewer bedrooms makes sense once children have moved out?

A smaller property could also be more manageable later in life or better suit your needs.

2 drawbacks of downsizing you may want to consider

  • You may not want to move out of your home and away from your community

For some, moving home can be a difficult prospect. You might have an emotional attachment and fond memories associated with your home. You may also be reluctant to start again in a different community or move further away from your family and friends.

  • You may need to pay costs associated with moving

There are often associated costs with buying a new property.

You might need to pay Stamp Duty, conveyancing fees, and general moving costs. Factoring these expenses in when weighing up whether downsizing is the right option for you could be useful.

Equity release could allow you to unlock property wealth while remaining in your home

If downsizing isn’t right for you, equity release may be an option you want to consider. However, it could affect your finances for the rest of your life, so it’s important to understand how it works.

The most common type of equity release is known as a “lifetime mortgage”. It’s essentially a loan that’s secured against your home.

Unlike traditional loans, you don’t have to make repayments. Instead, the money you access, along with the accrued interest, is usually paid when you pass away or move into a care home.

So, equity release could give you access to a lump sum while allowing you to remain in your home without increasing your day-to-day costs.

Figures from the Equity Release Council show the total lending through equity release in the second quarter of 2023 was £664 million. The average customer accessed almost £60,000 when using equity release for the first time.

How much you can access through equity release will be dependent on the value of your home. The minimum age for using equity release is usually 55.

You don’t have to own your home outright. However, you’ll need to pay off your mortgage, along with any early repayment charges, with the money you release.

Of course, there are potential disadvantages to using equity release you need to balance against the pros, including these:

  • The amount you owe can increase significantly

As you don’t have to make repayments when using equity release, the amount you owe when you pass away could be much higher than the amount you borrowed.

If you don’t make interest repayments, the interest is added to the original loan. The following month or year, depending on your plan, the interest will be calculated based on the amount you borrowed, plus the interest already accrued.

This compounding effect means the amount of interest added can rise even if the interest rate remains the same.

Some equity release providers allow you to make repayments or pay off the interest, which may help you manage the debt. 

  • Equity release could affect the inheritance you leave loved ones

Using equity release will reduce the value of your estate and may affect the inheritance you intend to leave behind for loved ones. So, considering who you’d like to benefit from your estate and whether you want to pass on your home is important.

Often, equity release providers offer a “no negative equity guarantee”. This means the amount you owe cannot exceed the value of your home and other assets are preserved to pass on.

  • It may limit your options in the future

You cannot secure other loans against your home after using equity release. As a result, it may limit your options in the future.

In addition, it could make moving home more complicated. It might be worth thinking about your long-term plans before you proceed with equity release.

  • It can affect means-tested benefits

If you currently receive means-tested benefits, or could in the future, equity release could affect your eligibility.

Get in touch to discuss if equity release could be right for you

If you’re interested in accessing property wealth and would like to know more about how equity release works and whether it may be an option for you, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

You will need to take legal advice before releasing equity from your home as lifetime mortgages and home reversion plans are not right for everyone. This is a referral service.

A Lifetime Mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.

Approved by The Openwork Partnership on 10/10/2023.