Using equity release to boost retirement income is an increasingly popular option; over £4 billion was unlocked in the first half of 2024 alone,¹ proving a top choice for seniors wanting to maintain their standard of living and enjoy their latter years.

The possibilities are diverse and this financial solution can help supplement your income, pay off debts, or fund lifestyle choices, but it’s important to understand its long-term impact.

At EveryInvestor, we’ve researched the pros and cons and are committed to maintaining comprehensiveness to ensure you are completely informed. Our editorial team reviews and fact-checks all content, and we regularly update our articles to keep them relevant.

Keep reading to explore the details of how this could work for your future...

What Is Equity Release & How Can It Boost My Retirement Income?

Equity release is a financial product that allows retiree homeowners to unlock some of the value tied up in their property, and this can boost your retirement income by providing extra funds for living expenses, home improvements, or other needs, without requiring you to sell your home.

Let's look into this a little more closely:

What Are Equity Release Mortgages?

Equity release mortgages are specifically designed for homeowners over the age of 55, allowing them to access a portion of their home’s equity.

This can be an attractive solution for those looking to increase their financial resources without the need to downsize.

There are 2 main types of equity release: a lifetime mortgage, which is a loan secured against the home, and a home reversion plan, where you sell a share of your property, with repayment deferred until a later stage, such as when the property is sold or the homeowner moves into long-term care.

How Can Equity Release Boost My Retirement Income?

Equity release, especially through a lifetime mortgage, can boost to your retirement income by allowing you to access funds without the need to sell your property, which be particularly advantageous if your property has appreciated in value since purchase.

With this option, you can maintain your lifestyle without worrying about monthly mortgage repayments; however, it’s crucial to consider its potential impact on inheritance and eligibility for means-tested benefits.

Seeking professional equity release advice is essential to ensure that your retirement finances are managed effectively and aligned with your long-term goals.

Who Is Eligible to Use Home Equity for Retirement Income?

Homeowners in the UK aged 55 or over with a property worth at least £70,000 can access their home’s equity to boost retirement income through equity release.

While these are the basic eligibility criteria, lenders may have additional requirements, such as property type, condition, and location; additionally, some may assess your age and health, as these factors can influence loan terms.

If you're considering equity release, consulting a qualified broker or financial adviser can help determine whether it’s the right option for you and which plan best suits your needs.

How Could Equity Release Products Boost My Income in Retirement?

Equity release could provide a vital boost to your retirement income by supplementing your pension, reducing financial strain and debt, allowing for home improvements, and helping you maintain your desired lifestyle.

Many retirees find that their pension alone is not enough to cover their expenses, and equity release offers a way to bridge that gap and provide a comfortable buffer, either through a lump sum payment or the availability of a drawdown facility.²

Here are the ways to use your funds:

How Can You Use Equity Release to Supplement Your Retirement Income?

You can use equity release to supplement your retirement income by getting that tax-free cash from your home through several options; this can provide financial flexibility in retirement, helping you maintain your lifestyle or fund new opportunities.

These are some options you may want to consider:

• Use your drawdown lifetime mortgage as a way of accessing additional funds when you need to stretch your pension a bit further.
• Use your equity release funds to generate a passive income by purchasing a buy-to-let property.³
• If you do not want to stop working just yet, use your equity release as start-up capital for your own small business.

Can Equity Release Help You Top Up Your Pension?

Equity release can be a useful way to top up your pension if your existing retirement savings fall short—a drawdown lifetime mortgage is great for this, allowing you to access funds gradually and helping you manage your finances more effectively.

With this option, you receive an initial tax-free lump sum while keeping the remaining funds in reserve, only incurring interest on the money you withdraw and reducing the long-term cost of borrowing.

Many plans offer flexible withdrawals, typically starting from £2,000 per transaction, though terms vary by provider.

But, before proceeding

Consider how this strategy aligns with your overall retirement goals and seek professional financial advice to explore the best options for your needs.

Can Equity Release Help Reduce Your Monthly Outgoings?

Equity release can be a strategic way to reduce your monthly expenses in retirement; by opting for using equity release, you eliminate the need for monthly repayments, easing financial strain and allowing you to enjoy a more comfortable retirement.

If you're still making payments on a mortgage, car loan, or credit card debt, these financial obligations can significantly reduce your disposable income.

Could Your Home Be Worth More Than Your Retirement Savings?

Your home could very well be worth more than your retirement savings; as the UK housing market continues to rise, many retirees find that the value of their property exceeds the total value of their pensions.

This presents an opportunity to go the equity release route, providing an alternative or supplementary source of income for your retirement and maintain a comfortable lifestyle without depleting your pension.

While equity release schemes offer a tax-free way to tap into the wealth tied up in your property, it is important to seek professional advice from a qualified and Financial Conduct Authority-authorised adviser to ensure you fully understand the potential costs and benefits of equity release.

How Can Equity Release Provide a Monthly Income?

A drawdown lifetime mortgage allows you to create a monthly income by accessing your home’s equity in smaller, regular withdrawals rather than taking a lump sum—this can be a solution without depleting your pension too quickly.

This approach helps supplement your pension while keeping interest costs lower, as you only pay interest on the amount you withdraw, not the total reserve.

The actual income you generate depends on factors such as your home’s value, the amount of equity available, and the interest rate, which typically ranges from 3% to 6%.

*These rates are provided for indicative purposes only. While we continually update our interest rates information, these rates may have changed our last update.

Why Are So Many People Looking for Extra Money for Retirement?

Many people are looking for extra money for retirement because of the rising cost of living, the fact that people are living longer, and the reality that many older Britons have not saved enough to see them through their senior years.

Given these challenges, increasing numbers of retirees are considering routes such as equity release to enhance their pension income and ensure a comfortable, financially secure retirement.

A closer look at some of the factors causing the growing interest: 

• Rising life expectancy means UK retirees are spending more years in retirement, necessitating additional financial resources to maintain their quality of life: 50 years ago, people only need budget for 10 to 15 years of retirement; today, you may have to plan for 30 years or more.
• The erosion of traditional pension provisions has led to increased reliance on personal savings and investments, which may not be sufficient for retirement: You will need to have saved between half and 2-thirds of what you earned in your lifetime after tax to retire comfortably.⁴ 
• Factors like inflation, low interest rates, and unpredictable economic conditions can impact the value of pensions, making it challenging to generate adequate income.

Are There Drawbacks to Using Equity Release to Boost Retirement Income?

Yes, there are drawbacks to using equity release to boost retirement income, including the fact that equity release will reduce how much your heirs will inherit and that equity release can affect your benefits.

These are the pitfalls to consider:

• You will normally only be able to access 20-60% of the value of your property than if you sold it on the open market. (The amount of equity available to you will also depend on whether you have an existing mortgage on your home.)
• Because equity release is traditionally only settled when the last borrower passes away or goes into care and your home is sold, you may have accrued significant interest, meaning less inheritance for your heirs.
• The government uses a means test⁵ based on your capital, savings, and income to determine if you are entitled to benefits. Your primary residence is normally excluded from these calculations, but if you release equity as cash, it will be regarded as savings and could take you over the benefits limit.
• Some equity release plans may have high interest rates, which can increase the total amount owed over time. 
• There can be significant upfront costs associated with setting up an equity release plan, such as arrangement fees, valuation fees, and legal fees.

What Are Some Alternatives to Equity Release?

If you're looking for alternatives to equity release and traditional pensions, options like Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs), and investing may be worth considering.

A Lifetime ISA allows you to save for retirement with a government bonus, but funds can only be withdrawn for a home purchase, after age 60, or in cases of terminal illness.

SIPPs offer greater control over how your pension grows, allowing you to tailor investments based on your risk tolerance and retirement timeline.

Investing in stocks, shares, or property can also help build retirement wealth, though it carries more risk.

Common Questions

In Conclusion

If you're seeking additional sources of income in retirement, equity release could be a valuable option to explore, allowing you to supplement your pension income and enjoy a comfortable lifestyle without dipping into your savings.

As always, though, fully understand the risks and rewards of equity release before making any decisions—carefully evaluate your options and seek expert adviceto ensure you make an informed choice that' aligns with your financial goals's right for your predicted financial future.

With the right knowledge and guidance, equity release can be an effective way to boost your retirement income, offering greater financial security for you and your family.