Is Releasing Equity With Equity Release Right For You in 2024?

Equity release suitability depends on individual financial needs, property eligibility, and long-term goals, requiring thorough consideration.
  • Last Updated: 18 Apr 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui
Want to Know If Equity Release Could Be Right for You? Discover the Steps to Take to Start Finding Out If Equity Release Could Benefit You and Tips for Choosing the Best Equity Release Plan for YOU. It's All Here.
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Key Takeaways
  • Equity release in 2024 offers lump sum or regular income payments and boosts your finances significantly, but be aware it may decrease your estate’s value and could affect eligibility for state benefits.
  • While offering financial relief, it carries risks like potential negative equity and jeopardising means-tested benefits and state pensions.
  • Committing to equity release often means you cannot sell your home unless you can repay the loan, possibly requiring other financial resources.

Is equity release right for me?’ 

This is a critical question many UK homeowners find themselves grappling with when considering options for accessing capital tied up in their homes. 

As you approach retirement, the thought of financial security becomes more important than ever, which could be why more than 90,000 Britons decided that equity release was right for them in 2022.1

The equity release question becomes even more pertinent when you consider that over 50s own 78% of all of the UK’s privately held housing wealth and those over 65 hold an estimated £2,6 trillion of net housing wealth.2

That being said, whether you should consider equity release is very much dependent on you.

In This Article, You Will Discover:

    This article serves as a comprehensive guide to understanding equity release. At Every Investor, we aim to equip you with the knowledge needed to start evaluating if equity release could be suitable for your unique situation and future aspirations. Consider this a preparatory step before consulting a financial advisor.

    Read on to find out what you’ll need to consider. 

    What Exactly Does Equity Release Mean?

    Equity release is a financial tool that lets you access the wealth tied up in your home without having to sell it.

    It’s an option for those over 55, offering a way to tap into your property’s value while you continue living there.

    There are two main types: lifetime mortgages and home reversion plans.

    With a lifetime mortgage, you borrow against your home, repayable later.

    Home reversion involves selling a part of your property in exchange for a lump sum or regular income, while still living there.

    Read More: What Does Equity Release Mean?

    Is Equity Release Suitable For You?

    Equity release can be a suitable option for individuals who are looking to access the value of their home without having to sell it.

    It is particularly beneficial for older homeowners who have a significant amount of equity built up in their property.

    By releasing this equity, individuals can use the funds for a variety of purposes, such as supplementing their retirement income, making home improvements, or paying off debts.

    However, it is important to carefully consider the implications of equity release, as it may affect eligibility for means-tested benefits, inheritance planning, and the amount of equity left for future generations.

    Equity release is not suitable for everyone, and it is crucial to assess individual circumstances before making a decision. Factors such as age, health, and financial goals should be taken into account.

    Additionally, it is recommended to seek independent financial advice to ensure that equity release is the right option and to explore alternative solutions.

    While equity release can provide a valuable source of funds, it is important to understand the potential risks and costs involved.

    By carefully considering one’s situation and seeking professional advice, individuals can determine if equity release is the suitable choice for them.

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

    The eight things you must consider when asking yourself, “Is it a good idea to release equity?“, include questions like why you need access to capital and how much of it you require.

    Here’s the full list of questions to ask yourself:

    1. Why do I need the money?
    2. How much money do I need?
    3. What’s my current income and expenditure?
    4. Could I afford the loan?
    5. What impact will equity release have on the value of my estate?
    6. Am I considering my future plans and goals?
    7. Have I explored alternative options?
    8. Where can I find professional financial advice?

    Thinking about these questions could help guide your thoughts if you’re about to consult an equity release broker or advisor.

    Remember 

    This article’s a guide, not a substitute for professional advice.

    Let’s delve into each of the points to keep in mind step by step.

    #1. Understanding Your Reasons For Considering Equity Release

    Understanding your reasons for considering equity release is crucial in determining if it’s the right financial decision for your unique circumstances. 

    A 2023 SunLife survey revealed that prospective borrowers often seek equity release to fund holidays and home improvements.3

    Here’s the full list of responses to the SunLife survey, in order of popularity:

    1. 53%: holidays or travel
    2. 47%: home improvements or adaptations
    3. 27%: paying off a mortgage and other debts
    4. 27%: early retirement
    5. 17%: early inheritance
    6. 15%: family gifts
    7. 10%: supporting family (studies, house deposit etc.)
    8. 9%: something else

    Your reasons may, of course, be different or consist of a number of factors.

    What about your feelings?

    Don’t forget to think about the emotional dimension attached to retirement planning. 

    If you’re extremely attached to the family home, that may sway you towards equity release, as you wouldn’t have to say goodbye to a lifetime of memories.

    However

    While emotions are often a factor, they should be considered alongside objective financial points.

    Consider, for instance, whether moving to a smaller property, or a home in a more retirement-friendly location, may be a more suitable option for you in the long run. 

    In short

    If you’re property-rich but need income in later life, equity release could potentially be the solution—as could an alternative like downsizing or renting out a room.

    Remember

    Seek advice from an independent equity release advisor or broker if you’re considering equity release or any alternative solutions.4

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

    Considering how much equity you need and for how long will be a crucial step when you’re deciding whether an equity release loan could suit your purposes. 

    You can 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 paying off debts. 
    • 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’ll need the funds, considering factors like age and life expectancy. 

    Once you’ve worked out how much money you’ll need to fund your retirement, it’s time to calculate how much equity you may be able to access and weigh up whether you’d have enough to cover your projected expenses.

    If you’d like an estimate of how much you could potentially borrow through an equity release loan, you could use our free equity release calculator.

    #3. Assessing Your Income & Expenditure

    Assessing your income and expenditure is very important when determining if equity release is right for you.

    By doing so, you may even find that adjusting your budget could be a better solution.

    Here’s how to obtain a clearer picture of your own books:

    1. List all your income sources (e.g., salaries, pensions, investments).
    2. Divide your expenses into two 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 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.

    Assessing your financial situation can help you make informed decisions about equity release or alternative solutions.

    Keep in mind

    Predicting future financial situations can be complex and uncertain, and professional advice should be sought.

    #4. Determining Affordability

    Determining affordability’s essential when considering equity release—or any financial decision.

    Keep in mind, equity release comes with costs and may not always be the most economical borrowing method.

    Additionally, because the loan’s only designed to be paid back when you die or move to long-term care, equity release schemes often come with Early Repayment Charges5, which can further reduce the value of your estate if you decide to repay the loan before the end of the term.

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

    Considering the potential impact on the value of your estate is crucial when thinking about an equity release loan. 

    The potential effects include, but aren’t 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’s 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. Thinking About Your Future Plans & Goals

    Thinking about your future plans and goals may seem like an obvious step, but it’s one that can easily fall by the wayside when you’re worried about your retirement finances.

    What are your expectations for your retirement?

    Think about factors like:

    • 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. Exploring Potential Alternatives To Equity Release

    Exploring potential alternatives to equity release is a very important step before deciding on equity release. 

    Consider options like downsizing to a smaller property, renting out a portion of your home, or using your savings or investments to meet financial goals. 

    Why?

    Equity release may not be the right solution for everyone. 

    For example, it may affect your tax status and eligibility for state benefits6, result in a substantial amount of accumulated interest over time, and significantly reduce the value of your estate.

    What’s important

    Seeking professional financial advice can help you evaluate these alternatives and make the best decision for your circumstances.

    #8. Seeking Independent Financial Advice

    Seeking independent financial advice is crucial when considering equity release or any major financial decision. 

    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.

    Key Takeaways

    The key takeaways from this article include eight points to think about if you’re weighing up equity release.

    These are the factors to consider:

    • Reasons for Equity Release: Identify why you need the funds—for home improvements, travel, debt payment, etc.
    • Equity Amount & Loan Duration: Define your financial goals and future financial needs, and calculate your required funds and potential loan duration.
    • Income & Expenditure Assessment: Review your income and spending habits, and consider if budget adjustments can meet your needs instead.
    • Affordability: Evaluate your capacity to handle the costs of equity release, including potential Early Repayment Charges.
    • Impact on Estate Value: Understand how equity release can reduce your estate value owing to decreased equity and interest accumulation.
    • Future Plans & Goals: Consider whether equity release aligns with your retirement vision, potential healthcare costs, family support needs, and inheritance plans.
    • Equity Release Alternatives: Explore other options like downsizing, renting out part of your home, or using savings/investments. Understand the potential risks of equity release, including the implications of long-term interest compounding and the impact on eligibility for certain benefits.
    • Independent Financial Advice: Consult an unbiased independent financial advisor for informed decision-making.

    Common Questions

    What Are the Pros and Cons of Equity Release

    How Does Equity Release Work in the UK

    Are There Any Risks Involved in Equity Release

    How Can Equity Release Impact My Pension and Benefits

    Can I Sell My Home After I've Taken an Equity Release

    How Does Equity Release Affect My Beneficiaries

    Can I Change My Mind About Equity Release After I Sign Up

    What Happens If I Move or Want to Sell My Property After Taking Out an Equity Release Plan

    How Long Does It Take to Set Up Equity Release

    How Does Equity Release Impact Inheritance Tax

    In Conclusion

    Depending on individual needs and circumstances, equity release can be a useful way for homeowners to access their property’s value while maintaining their cherished home. 

    By understanding your reasons for considering equity release, evaluating the impact on your estate, assessing your income and expenditure, contemplating future plans, and seeking independent financial advice, you’ll be well-equipped to make a well-informed decision. 

    The key lies in carefully analysing your individual circumstances and financial goals. 

    It’s also crucial to weigh the pros and cons of equity release against other options like downsizing, retirement savings, or renting out part of your home. 

    Always consult with an independent financial advisor to understand your options and make an informed decision

    So, take a moment to reflect, consult a professional, and ultimately ask yourself: Is equity release right for me?

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