Equity Release  

How can equity release be used to fund retirement?

This article is part of
Guide to using property to fund retirement

How can equity release be used to fund retirement?

Equity release can be one way for those reaching retirement to fund their activities and needs in later life.

What might have once been seen as a fairly niche product has recently seen a surge in interest, as people try to find new ways to unlock the value of their property.

The Equity Release Council (ERC) reported growth in the value of equity release lending was £701m in the second quarter of 2017, which means the value of lending has climbed by more than a third when compared to the second quarter of 2016.

Of the 16,000 customers supported by ERC members between April and June, 8,454 took out new equity release plans - a 27 per cent increase year-on-year.

It appears there is more demand than at any other time for equity release.

Figure 1: Housing wealth's role in retirement planning

Source: Old Mutual Wealth, Tisa

Stuart Wilson, channel marketing director at more 2 life, observes: “There are numerous growth drivers affecting this market, but the introduction of pensions freedoms has been one of the biggest revolutions the market has seen. 

“These new rules provide customers with increased flexibility and myriad ways to access their pension pots. This will undoubtedly lead to more older homeowners looking towards equity release as a complement to, or even a primary funding asset for, retirement.”

Releasing equity

Alice Watson, head of marketing at Retirement Advantage Equity Release, explains how it works: “Equity release allows UK property owners aged over 55 to release some of the cash stored up in their property without needing to move. 

“The money released is tax-free and can be spent on whatever the property owner chooses: for example, clearing mortgages or credit cards, gifting to family, or making house and garden improvements.”

How much is released from the property will depend on a number of factors, including the value of the property, the age of the customer and how much they want to borrow.

Ms Watson notes: “The money customers release won’t be paid back until they or the last remaining borrower either dies or moves permanently into long-term care.”

Lifetime mortgages are proving to be the most popular form of equity release, partly due to recent product innovation but also because customers continue to own their property while releasing money from it, she points out. 

“And, as long as customers abide by the terms and conditions of the loan, their property will never be repossessed,” Ms Watson adds.

Protecting customers

Indeed, there are a number of protections in place for those who choose to release equity from their property.

Dean Mirfin, technical director at Key Retirement, points out: “Certainly any provider who offers lifetime mortgages accredited by the ERC must come with three guarantees as a minimum. 

“The first is the right to live in your home for the rest of your life. The second is the right to move and take the loan with you, so for the loans to be portable. There is a caveat to that, which is that the property you’re moving to must be acceptable.