How to unlock the value of your home as equity release market nears £4bn mark

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Equity release solutions are becoming increasingly popular among older homeowners in the UK who wish to access part of the wealth locked up in their property. Indeed, new research suggests that homeowners are set to access more than £4 billion of property wealth this year via equity release.

If you are in need of cash and are considering unlocking some of your home’s value through equity release, then here are the main ways to do so and some things to consider before taking the plunge.

What’s happening with equity release?

According to recent figures released by the Equity Release Council (ERC), homeowners in the UK have released £3.46 billion from their homes so far this year, surpassing previous years.

In Q3, around £1.15 billion of property wealth was unlocked by homeowners. Although this figure is 2% down from Q2’s £1.17 billion, it’s still up 19% (£963 million) from Q3 in 2020.

The ERC expects the total amount of money unlocked via equity release to hit £4 billion this year.

Commenting on these findings, David Burrowes, chairman of the Equity Release Council, said: “The equity release market has been a steady ship in turbulent times, with activity broadly stable now for four successive quarters.

“The inevitable pandemic slowdown has been followed by the gradual return of confidence, helped by the robust performance of the wider property market.”

How can you release the equity in your home? 

There are two main types of equity release products that you can use to unlock the value of your home.

1. Lifetime mortgage

This is the most popular type of equity release, taking up the majority of this market.

A lifetime mortgage is basically a loan that is secured against your home. You can access the cash in one go as a lump sum or in stages as you need it. The loan plus the accrued interest is paid off through the sale of your home when you die or move into long-term care.

The interest is compounded. In other words, it is charged on both what you’ve borrowed as well as on the interest it has built up from the previous month. So, the longer you keep the loan, the more interest you will have to pay.

However, the good news is that some providers will allow you to make monthly repayments that can reduce the interest due in the end.

2. Home reversion

With home reversion, you sell all or part of your property to a home reversion provider. They usually pay less than the property’s current market value. In exchange, you get a tax-free cash lump sum or regular payments.

With this option, you can continue to live in your home rent-free until you die. However, you must keep the house in good condition as well as take out home insurance for it.

Once the home is sold, the proceeds are divided based on the percentage you own and that owned by the provider.

This equity release product is typically only available to more senior property owners, typically those aged 65 and up.

Is equity release right for you?

According to David Burrowes, ”homeowners in need of extra funds for later life are increasingly looking to equity release as a positive step, in the right circumstances, to benefit from a source of wealth they have built up over many decades.”

However, equity release may not be right for everyone.

If you’re thinking of going down this route, then it’s worth seeking advice from a qualified financial adviser first. They can analyse your personal circumstances and advise you on whether this is a viable choice for you.

If equity release could work for you, then your adviser can assist you with all aspects of the application process.

You can find a qualified equity release adviser in the ERC member directory.

What else do you need to keep in mind?

One main thing to keep in mind when it comes to equity release is that it will directly affect what you can leave behind as inheritance to your beneficiaries.

So, if you want to preserve as much of your estate as possible to pass on, then it might be better to consider other options for raising the cash you need. For example, you could downsize or let out a part of your home temporarily.

If you decide to go forward with equity release, then be sure to inform your beneficiaries of your plans. This can help prevent shock at a time when they might be least prepared to handle it.

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