What can I use Equity Release for?
Many people, as they enter later life, find themselves in a position of being asset rich but relatively cash poor. If you own your own home, your net worth may be a significant sum and yet you don’t have as much disposable income as you would like. If you find yourself in this situation, you can use equity release to help you enjoy a more comfortable retirement.
With a Lifetime Mortgage, you can free up some of the value locked up in your home. Any equity released provides tax-free cash for you to do some of the things you have always dreamed of.
If you’re wondering what can I use equity release for then here are some of the reasons why people consider releasing equity.
Top 10 Uses of Equity Release
You can spend the cash released through a Lifetime Mortgage however you wish. The most popular uses for releasing equity are:
1. Paying Off Existing Debts
If you have an existing mortgage – perhaps an Interest Only Mortgage that is due to end soon – you might be able to repay it with a lifetime mortgage. Loans, car finance and credit card debt, can also be paid off.
Many people find they can enjoy their retirement better when they do not have to worry about monthly debt repayments.
As you do not have to make any capital or interest payments on a Lifetime Mortgage during your lifetime, this can be a great way to consolidate your debts. In turn, this will give you more disposable income throughout retirement.
2. Home or Garden Improvements
Home improvements are amongst the most popular uses of equity release. Many of our clients love their home but feel that it is time to give a tired kitchen or bathroom (or even the whole house) a makeover. Sometimes it is the garden that needs attention.
Perhaps you have dreamed of a new conservatory or even a full-blown extension. Equity release could help you turn your ‘forever home’ into your grand design.
Many people dream of going on the trip of a lifetime when they retire. Others wish to escape the British weather and spend a few weeks in the sun every year, maybe in a holiday home.
Some of our clients live life to the full by having skiing, cycling, trekking and other activity holidays.
Where would you go?
4. Buying A New Car
There are many reasons people purchase a new car in retirement. Maybe it is the first opportunity to treat yourself to a brand-new car – one that has been kitted-out to your exact requirements. Maybe, you need a vehicle that is more comfortable and reliable. Or perhaps you need something more suitable for taking your dogs on a long journey, or ferrying grandchildren, pushchairs and other paraphernalia. Is it a second car, such as a cabriolet or a classic car, that you have always dreamed of?
5. Increasing Retirement Income
A lifetime mortgage can offer you an extra income in retirement either through a regular payment plan or with a drawdown facility. With the latter, you take an initial lump sum and then make additional withdrawals whenever it suits you. Many people find this flexibility to be a great way to boost their income and improve their lifestyle throughout retirement.
6. Helping Loved Ones
Equity release can be a fantastic way to gift those you love a ‘living inheritance’. A popular reason for this is to help children or grandchildren onto the property ladder. With the spiralling costs of university education, another popular use is to help grandchildren fund their higher education.
Making a gift now can be the best of both worlds – your loved ones get help when they need it, and you can enjoy seeing the difference it makes during your lifetime.
7. Emergency Funds
After using the initial lump sum from a lifetime mortgage, our clients often keep an extra amount available in reserve. This can be done with a Drawdown Lifetime Mortgage. As interest is charged only on cash drawn down, the untapped funds can be an ideal safety net. The total drawdown facility is agreed at the beginning of the lifetime mortgage, and you can usually access any remaining cash in just a few days.
8. Buying A Property
An increasingly common use for equity release is to fund a property purchase. The three types of property bought in this way are:
- A new home. It might be that the new home is more expensive than the one being sold. In other cases, people move to a new property and wish to pay for alterations that make it comfortable for their retirement. Have you always wished for a better property, maybe with a bigger garden or perhaps one with a sea view?
- A holiday home or second property, perhaps one that is near to your family or friends.
- Rental property. E.g. if you already have some buy-to-lets, you can use a Lifetime Mortgage to add to your portfolio or pay off existing BTL mortgages. Rents can provide a useful additional income in retirement.
There are many possible reasons for funding healthcare with the help of equity release. Perhaps you have been considering cosmetic surgery or dentistry. Maybe you or a loved one could benefit from a private operation which isn’t available on the NHS, or the waiting list is too long.
Some retirees wish to pay for private medical cover, something their employer may have paid for until retirement and will become increasingly expensive in later life.
Should the worst happen, and you suffer a life-changing illness or injury, equity release can provide emergency funds at a critical time. For some, this will mean being able to afford a private medical examination or treatment. For others, it might be adapting their home and paying for care cost.
10. Inheritance Tax Planning
The growth in house prices has traditionally outstripped any government increases to inheritance tax allowances. This is especially the case in London and the South East of England (where Advice for Later Life are based). For those wishing to provide the maximum inheritance for their loved ones, Inheritance Tax (IHT) can be a worry.
Equity release can be a way to reduce or entirely mitigate the risk of an eye-watering inheritance tax bill. There are Lifetime Mortgages which can ringfence some of the value of your home and therefore guarantee your beneficiaries receive an inheritance.
Please note that Inheritance Tax Planning is not regulated by the FCA.
What you can’t use Equity Release for
As you can see from the top ten uses above, you can release equity for almost anything to make your later years more comfortable and enjoyable. With the right advice and careful planning, you may be able to use it for several different uses throughout your retirement.
However, as a Lifetime Mortgage is a loan secured against your home, there are some limits. For example, it would not make sense to spend the cash betting on the Grand National or gambling huge sums in a casino.
Likewise, taking a punt on stock markets and related financial investments can be very risky. The risk is worse later in life when you have neither the income nor the time to smooth out or absorb any shortfalls.
Equity release is not right for everybody, which is why it is so important to get expert advice.
How to find out more
If you’re over 55, own a home worth at least £70,000, and want to know if equity release is right for you, please contact us.