Home Equity Release Guide

With delayed retirement, uncertain economic stability and growing inflation, could Home Equity Release provide the financial benefits retirees are seeking? Over the past decade, our idea of what constitutes retirement has changed. Far from the traditional view of retirees, the generation of people now approaching retirement age are vibrant and active.


Retirement: The History

For many years, the national retirement age has been set at 65 for men, and 60 for women. These respective ages were the accepted point in life at which the Government anticipated individuals would be ready to conclude their career and draw a state pension. However, as life expectancy has consistently increased, the established age for state pension availability has necessarily been increased. From 2020, both male and female state pension ages will be increased to 661, moving to 67 by 2027, and then increasing incrementally according to life expectancy trends from that point onwards.


Future Plans For Retirement

The Government has committed to reviewing the age of state pension allowance every five years2, to ensure that the set time scales reflect the projected upward trend for longevity. The simple outcome of this commitment is that those individuals who are currently in their early 20s and embarking on careers will potentially have to wait until they reach 70 before they will become eligible for state retirement.


State Pension Eligibility Criteria

Eligibility for a full state pension is dependent upon potential recipients reaching established criteria. In addition to attaining the set age, recipients must both work in the UK, and have accrued sufficient payments of National Insurance to qualify over a minimum of 30 years, either through wage deductions or Government-assisted credit payments3. The basic rate increases incrementally annually and is influenced by the average percentage growth across UK wages and the Consumer Prices Index. Those on low incomes may also qualify for the state pension. The date when you may draw your state pension depends upon your year of birth, which can be determined through the DWP online calculator.


Home Equity Release: The Basics

Equity release plans are designed to enable homeowners to access some of the equity within their property, without having to sell the home to release the funds. The plans are usually available to people over 55 years and provide the opportunity to borrow against the value of their home4, to create an additional revenue stream. As many people in their 70s tend to be equity rich, but low on liquid assets or cash, a home equity release plan resolves the issue by providing immediate funds against the value of their home.

Equity release is also known as a ‘lifetime mortgage’, since while homeowners do not pay any interest on the amount borrowed during their lifetime, they are required to settle the loan and agreed interest following their death, through the proceeds from the sale of the property5.


The Pros And Cons Of Home Equity Release Services

In the past, equity release received adverse publicity in some quarters as some lenders were believed to be taking advantage of elderly borrowers. However, recent legislation now protects borrowers from previous issues by governing the information all providers must include to prospective buyers. It also enforces a ‘no-negative equity guarantee’ which prevents lenders from pursuing loans should the amount borrowed exceed the value of the home when it is sold.


Understanding The Loan Rate And Interest Level

While equity release loans can be more expensive to borrowers than typical mortgage rates, the new guidelines for best practice mean that it is still a viable and popular choice for over 55s looking to release funds. As an example, a couple aged 75 and 73 in good health wishing to take out a £95,000 lifetime mortgage on a home valued at £250,000 would expect to pay around 6.79 per cent in fixed interest rates. This would increase the debt to £131,940 after the first five years, and then double it after ten. While this may sound excessive, the couple would experience no financial impact during their lifetime, so in effect, the interest would not be of an issue when their house was ultimately sold.


Could Home Equity Release Be The Future Of Retiree Financial Stability?

The gradual refinements to equity release loans over the past few years mean that this way of freeing up finances is becoming an ever more viable route by which retired people can improve their living standards. Average interest rates for lifetime mortgages are currently estimated to be at their lowest point in almost a decade6, demonstrating that increased governance is shaping the product to become far more consumer-friendly than it once was.


How To Make Equity Release Work For You

Further costs for the loan may be reduced if the borrower chooses to draw down equity as and when it may be needed, as opposed to taking a lump sum. This means that interest is accrued only on the amount borrowed at any one time, which may make home equity release a more favourable proposition for those considering it.


Choosing The Ideal Loan

Considering equity release and whether it is the right choice to enable you to realise additional cash flow following retirement comes down to a number of factors. These include whether you have children and would need to discuss the decision with them; how your overall financial circumstances and quality of life would be improved through immediate access to additional funds; and the different options to explore in terms of the sum borrowed, and the plans available.

As with any financial product, the key to making equity release work for you is to spend time researching various providers, to find the product which is most suited to your individual circumstances. With consideration, equity release could be the ideal product to enhance your standard of living and enjoy your later years in financial comfort.

1 Ageuk.org.uk Changes To State Pension Age 
2 BBC.co.uk State Pension Age To Be Reviewed Every 5 Years
3 Gov.uk The Basic State Pension
4 InterestOnlyLifetimeMortgage.com What Is The Qualifying Criteria For Equity Release
5 MoneyAdviceService.org.uk Lifetime Mortgage
6 Telegraph.co.uk Rates Have Fallen On Equity Release: Check Your Needs To Find The Best Deal