Equity release is available to people aged 55 or over to access funds tied up in their property, either as a lump sum or as a regular income.

Understanding equity release

Many are still put off by negative news stories of the past which focused on the mis-selling of products to vulnerable and elderly persons. However, with property owners preferring to remain in their homes rather than downsizing, equity release can in some cases, provide an attractive alternative.

Recent research from Canada Life Home Finance found at the end of 2019 there was £381 billion in equity release available to homeowners aged over 55 and their Alice Watson states:

“Our own data shows us that people use equity release products for everything from home improvements and holidays, to everyday expenses. The rising costs of living, combined with increased property prices, mean that over-55s will need to continue to view their wealth holistically and recognise the role that property wealth can play in providing retirement income.”

Different types of equity release

The two most common ways that such people can release equity from their properties, are either by using a lifetime mortgage or an equity reversion plan.

A lifetime mortgage gives homeowners the chance to borrow money from a provider which is secured against their home. By taking this approach, people retain full ownership of a property and do not have to make monthly repayments in any form. The amount borrowed and any interest would be paid off when the property is sold either after the owner’s death or when the owners move into residential care. In addition, any remaining equity will be passed to either the owner or their estate.

Another option is equity reversion. This sees a property owner sell all or part of their home to a company but continue to live their either for free or a nominal rent. The company would then sell the house upon the occupant’s death or move to residential care. You can also transfer a share of your home to a reversion company to raise funds. This would mean the occupant or their estate would be entitled to the share retained when the property is sold.

Remember also that, as the occupant, you would still be responsible for maintaining and insuring the property under both of these options so you would need to make sure you had funds in place to continue this.

Getting the right advice

This can be a complex area, so seek more information from legal experts and financial advisors before taking the plunge on this.

Irwin Mitchell solicitors provide a range of services for retirement planning.

By Helen Hutchison, residential property partner at Irwin Mitchell