How Equity Release Can Support Retirement Planning

For homeowners aged 55 and over, equity release offers a way to tap into property wealth while continuing to live in their home. This financial option provides access to cash without requiring monthly repayments, making it an attractive solution for many retirees looking to supplement income, fund home improvements, and enjoy life in their golden years.

However, while equity release is increasingly popular, it isn’t for everyone and can be costly due to the way interest is compounded. It can also impact taxes, benefits and inheritance, so it is essential to speak with a trusted advisor.  Working with a specialist equity release advisor like Flagstone will help you to make the best decision for your situation.

There are two types of equity release: lifetime mortgages and home reversion plans. Home reversion plans involve selling your house (or a share in it) to a provider, while you retain occupancy. With the more popular lifetime mortgage, you still own and live in your house.

This guide focuses on equity release in the form of lifetime mortgages, explaining how funds are accessed and the usual benefits. We also spotlight risks, suitability, and inheritance considerations.

Using Equity Release to Enhance Retirement Income

For many UK homeowners, their home is their most valuable asset. A lifetime mortgage allows you to unlock money from this asset via equity release. A loan, secured on your residence, provides tax-free cash to supplement pensions or savings. You can use it to:

• Cover day-to-day expenses
• Manage rising bills
• Assist family
• Maintain lifestyle choices like hobbies, sports, or travel.

Funds can be accessed as a lump sum or through phased drawdowns.

Interest rates compound over time, meaning your mortgage will increase until it’s repaid (usually when the home is sold following either your death or moving into long term care). Long-term planning and expert equity release advice will help you to enjoy the benefits without risk.

Funding Home Improvements and Later-Life Adaptations

You may need to fund certain upgrades or adaptations to ensure your home is suitably set up for later life.We’re talking:

• En-suite bathroom.
• Downstairs bedroom/ toilet.
• Energy-efficient upgrades (new boiler, insulation).
• Structural changes to improve comfort and independence.

Well-considered improvements and modernisation often increase the property’s value, helping to offset accumulating interest.

Long-Term Considerations: Interest and Inheritance

Because the loan’s interest rolls up, the debt grows, which reduces available “wealth”. This means less money remains in your estate for beneficiaries. And what if the debt ultimately exceeds your property’s worth?

Acknowledging these concerns, equity release mortgage providers offer tailored solutions to give homeowners and their families peace of mind. Plans from FCA-regulated lenders that are members of the Equity Release Council (ERC) include protections, such as:

• No Negative Equity Guarantee: The guarantee ensures you never owe more than the value of your home. As a result, no remaining debt is passed to your estate.
• Inheritance Protection: Equity release providers let you ring-fence a percentage of your home’s future value, preserving an amount to be passed to your family.

Discuss your inheritance goals (including “living inheritance” covered below) with a qualified financial advisor like Flagstone before committing to any plan.

Supporting Family During Your Retirement

Equity release lets you effectively bring forward your family’s inheritance. Known as a “living inheritance”, you’re able to share some of your money with your children or grandchildren now, rather than after the estate is settled.

For example, you could use a cash lump sum to:

• Help with the deposit for a new home
• Contribute to your grandchildren’s education
• Pay down outstanding family debts
• Help with family wedding costs
• Pay for a special family holiday

However, be aware that gifting money this way reduces your estate size, which can create Inheritance Tax (IHT) implications. Professional advice is important to structure tax/ inheritance plans correctly.

When Equity Release Might Be Worth Considering

Equity release retirement planning can make good sense in the following scenarios:

• Asset-rich but cash-poor: You have a substantial value tied up in property, but are short of liquid cash for monthly and large unexpected expenses.
• Expensive borrowings: You borrow money at high interest rates (e.g., on credit cards) to subsidise rising living costs.
• Committed to the home: You plan to stay in your current home for many years without considering downsizing.
• Extra income: You need a guaranteed, tax-free supplement to your pension income without increasing your monthly expenses.

Ultimately, whether an equity release plan is right for you depends on your personal circumstances. Variables like your age, financial goals, life expectancy, health, and other income sources all factor into the decision. How much equity you have matters as well.

Make sure to seek regulated financial advice before committing to any equity release scheme.

Risks to Consider With Equity Release

Equity release can help you enjoy the comfortable, well-deserved retirement you’ve worked hard for. However, here are a few risks to weigh before settling on this route:

• Compounded interest: As mentioned, interest accrues on the principal debt and on the interest already added. This means your debt can grow significantly over time.
• Early Repayment Charges (ERCs): If you decide to pay off the mortgage early (for example, to move or downsize), you could face large early settlement fees.
• Loss of means-tested benefits: The tax-free lump sum could push you over the entitlement threshold for means-tested benefits, meaning you lose current/ future income.
• Contributions towards care costs: Funds released may be counted as capital when local authorities assess your eligibility for care support.
• High interest rates: If interest rates soar, the mounting debt can become stressful.

Speak to a Mortgage Advisor About Equity Release

Equity release is a big financial decision that affects both your assets and your estate.

The friendly, professional Flagstone team is here to help you explore your retirement options with confidence. We work across the market, comparing a range of equity release products and providers to find the best package for your needs.

Contact us today for a no-obligation consultation, and let’s start the conversation about unlocking your home’s potential.