Equity release is growing in popularity with an increasing number of homeowners, although a worrying number of people are seemingly unaware of all the options available to them. Here we weigh up the pros and cons of equity release as well as the other options homeowners may wish to consider.

What is Equity Release?

Equity release enables homeowners to access the current equity in their home as a tax free lump sum or a cash reserve that can be drawn over a period of time. Many people use this cash to buy a retirement income, take a holiday, make improvements to their home or even pay off their mortgage. 

As well as people looking for ways to enjoy their retirement, those with interest only mortgages can also benefit from equity release as the lump sum can be used to pay off the full value of the debt when the mortgage reaches its full term. 

However, it is important to remember that equity release is not suitable for everyone and there are other options to consider.

What are my options?

1. Downsizing

If your children have left home and you are no longer in need of as much space, it might be a good time to consider moving to a smaller property to free up some available cash and pay off the mortgage. However, it is important to recognise the costs involved which include agency fees as well as purchase costs such as stamp duty, surveys and legal fees which are not inconsiderable these days.

2. Taking tenants or lodgers/Air BnB

So-called ‘empty nesters’ with room to spare in their properties may decide to rent a room or section of their property on a full or part time basis to create a steady source of income. If you find the idea too intrusive you may prefer to rent your property during the holidays via a site such as AirBnB which is open to tourists looking for a place to stay on a short term basis.

3. Making use of other assets

Utilising or accessing capital from an investment or tangible asset such as a car or second property could be preferable to equity release. A financial planner or IFA can work with you to create a holistic view of your current assets so you can determine which (if any) might be able to generate an alternative source of income. 

4. Borrowing money or re-mortgaging

With rates as favourable as they are in today’s market, there really could be no better time to borrow money at a highly competitive price. Even retirees can still take out a loan against the value of their home or re-mortgage right into their eighties in some cases! However, older borrowers in particular may face more difficulties during the application process and should therefore always consult with an expert mortgage advisor. 

Caution: Make sure you choose a suitable provider

If, after weighing up all your options, you decide that equity release is right for you, be sure to seek independent advice. Private Finance will ensure that you receive guidance from a provider who will only recommend plans that are regulated and approved by the Equity Release Council. 

For more information, please contact us on 0800 980 8777

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