Is equity release right for me? is a question many UK homeowners face when looking to unlock the value tied up in their properties.

In 2023, the equity release market experienced a resurgence, with total lending reaching £716 million in the third quarter alone, benefiting 7,379 new customers and 8,466 returning drawdown customers.¹ It's clear that this option has gained significant attention.

This article provides a comprehensive guide to help you assess whether equity release fits your unique situation and long-term goals, and at EveryInvestor, we aim to equip you with the information you need to make that informed decision.

Let’s dive into the details and help you decide...

What Exactly is Equity Release?

Equity release is a financial solution that enables homeowners aged 55 and over to unlock the value of their property without selling it, allowing them to access a lump sum or regular payments while continuing to live in their home.

Equity release can be a useful way to supplement retirement income, fund home improvements, or cover other financial needs while maintaining homeownership.

There are 2 main types of equity release:

• Lifetime Mortgage – You take out a loan secured against your home, with repayment deferred until you pass away or move into long-term care.
• Home Reversion Plan – You sell a portion of your property to a provider in exchange for a lump sum or regular income while retaining the right to live there.

Is Equity Release Suitable For You?

Equity release can be a good option for a retiree homeowner who wants to unlock the value of their property without selling it, proving particularly beneficial for those with substantial home equity who need additional funds for retirement planning, home improvements, or debt repayment.

It’s important to consider the potential pitfalls, though; equity release can affect inheritance plans, eligibility for means-tested benefits, and the amount of equity left for future needs. Costs and interest accumulation should also be factored in.

Equity release can have many uses, so before proceeding, seek independent financial advice to explore alternative options that might potentially be more suitable.

8 Things You Must Consider to Determine: Is Equity Release Right For Me?

The 8 things you must consider when asking yourself, "Is it a good idea to release equity?", include questions like why you need access to capital, how much of it you require, and if you have explored alternative options.

Remember, this is a guide, not a substitute for professional equity release advice.

Here's a list of the 8 factors to consider:

#1. Understand Your Reasons For Considering Equity Release

Understanding your reasons for considering equity release is key to making the right financial decision, further highlighting the importance of seeking advice from an independent equity release adviser.

A 2023 SunLife survey found that many prospective borrowers use equity release for (in order of popularity) holidays (58%), home improvements (49%), or early retirement (25%).²

Others prioritise mortgage repayments (22%), family gifts (13%), or financial support for loved ones (13%).

Beyond this

Consider the emotional aspect; if staying in your family home is important, equity release can allow you to access funds without moving.

However, downsizing or renting out a room might be a more practical alternative, especially if you are property-rich but are looking for that later-life income solution.

Note: When answering the survey, respondents were allowed to choose more than one category to use their prospective equity release funds on.

#2. Consider How Much Equity You Need &For How Long

Considering how much equity you need and for how long is immensely crucial, which is why thinking about factors such as your long-term financial goals and the required amount is key at the start of your consideration process.

Once you have worked out how much money you will need, calculate how much equity you may be able to access and consider whether you will have enough to cover your projected expenses.

Follow these steps to make an informed decision:

• Define your long-term financial goals: Outline your reasons for releasing equity, such as supplementing retirement income, home improvements, or debt consolidation. 
• Assess your future financial situation: Review your income, expenses, and savings to determine if additional funds are needed or if there are alternative ways to achieve your goals.
• Calculate the required amount: Consider potential future expenses or emergencies to estimate the money needed for your financial goals.
• Factor in loan duration: Determine the length of time you will need the funds, considering factors like age and life expectancy. 

#3. Assess Your Income & Expenditure

Assessing your income and expenditure is key, because by doing so, you may find that adjusting your budget could be a better solution.

Here's t steps to obtain a clearer picture of your own finances:

1. List all your income sources (e.g., salaries, pensions, investments).
2. Divide your expenses into 2 categories: essential and non-essential.
3. Track your spending to understand habits and identify areas for change.
4. Analyse your cash flow by subtracting all your expenses from your income.
5. Set realistic short-term and long-term financial goals.
6. Create a budget reflecting your goals, income, and expenses.
7. Review and revise your budget regularly.

#4. Determine Affordability

Determining affordability is essential when considering equity release—or any financial decision—and while it provides access to funds, it comes with costs that may make other borrowing options more economical.

One major consideration is early repayment charges, which can significantly reduce the value of your estate if you choose to repay the loan early, potentially making equity release less flexible than other financial solutions.

#5. Consider The Potential Impact On The Value Of Your Estate

Considering the potential impact on the value of your estate is key, especially when planning for inheritance or future financial decisions, as factors such as changes in property values, inflation, and market fluctuations can all influence the overall value of your estate.

Potential effects include, but may not be limited to:

• Reduced inheritance: Equity release reduces the equity in your property, which in turn decreases the value of your estate, so your beneficiaries may receive a smaller inheritance than they would have otherwise.
• Interest accumulation: The longer the loan is outstanding, the more interest accumulates, further reducing the value of your estate. 
• Property value changes: If the value of your property increases significantly, it may help offset the impact of the equity release, but if property prices decline, the impact on your estate could be more substantial.

#6. Think About Your Future Plans & Goals

Thinking about your future plans and goals may seem like an obvious step, but it one that can easily be overlooked when you are worried about your retirement finances.

What are your expectations for your retirement?

Consider factors such as:

• Retirement lifestyle: Envision your desired retirement and assess if equity release can support it.
• Healthcare needs: Evaluate if equity release can cover potential future healthcare costs and if you need to save the option for emergency funds at a later stage.
• Family support: Assess if you have family members you may need to support and if equity release can help with this.
• Inheritance: Consider the impact on your estate and communicate with your family.

#7. Explore Potential Alternatives To Equity Release

Exploring potential alternatives to equity release is a step that might just show you that an alternative financial tool to equity release may better suit your financial goals.

Downsizing to a smaller property could free up funds without the long-term commitment of a loan, while renting out a portion of your home can generate income without affecting your estate.

Using your savings or investments might also be a viable way to meet financial needs without the complications of equity release.

#8. Seek Independent Financial Advice

Seeking independent financial advice is probably the most important factor of them all when considering equity release or any major financial decision; professional advice should be sought after.

An independent financial advisor (IFA) registered with the Financial Conduct Authority can assess your personal situation, provide unbiased guidance, and recommend the most suitable financial products or solutions.

Their expertise ensures you make informed decisions that align with your financial goals and minimise potential risks.

Common Questions

In Conclusion

Equity release can be a valuable tool for homeowners looking to unlock the wealth tied up in their property, but it’s essential to approach it with careful thought and consideration.

It’s not just about equity release—it’s about weighing all available options and consulting an independent financial adviser who will provide the guidance you need to navigate these choices with confidence.

Ultimately, making the right decision comes down to understanding your needs, the impact on your estate, and ensuring the solution fits your future.

So, take your time, seek expert advice, and ask yourself: is equity release the right step for you?