Who Are Equity Release Schemes Most Suitable For?

Equity release is rapidly growing in popularity, with around a 6% increase in customers in 2019 compared to the previous year paired with the lowest average interest rates ever seen as part of the scheme, more details can be found from the Equity Release Council.

Who Is Equity Release Suitable For?

Equity release is suitable for anyone over 55 or in retirement who wants a tax-free lump sum without immediate payments. They are of high interest and have other implications that mean they won’t suit everyone.

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Looking for other information on Equity Release? This guide has info on 'Who is equity release good for?' We have also writen extensively about:

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Equity Release Eligibility Criteria

Before exploring whether equity release is a good idea, you need to ensure you’re actually eligible. The main condition is age – you need to be at least 55 years old to apply for a lifetime mortgage, although some lenders may have an older limit. If you’d prefer a home reversion scheme then you’ll likely need to be 65 years old.

And if you own your home jointly with your wife then you can only apply when the youngest of you reaches the age limit. You could get around this by writing the younger member of your partnership out of the deeds but this puts them at huge risk should you die as they wouldn’t be able to remain living in your home unless the debt was settled.

Equity Release: Criteria Around the Home

The other main criteria are around your home – you need to have paid of the majority of your mortgage, if not the whole amount, and your property must be worth at least £70,000. It must also have no issues that could cause it to be difficult to sell – if you live in a flood warning area, or next to a commercial building, your lender might not want to offer you a loan as they may believe it’ll be tricky to recoup their money.

Finally, you need to get formal financial advice before a lender will consider you for equity release. You’re within your rights to refuse it but you must get advice and it needs to be recorded by the financial adviser to show that you were given various options to choose from and that equity release is suitable for you.

Equity Release: Anyone Needing Financial Support During Retirement

Retirement is an uncertain time for many. You don’t know long you’ll live, and you need to make sure you’ve budgeted to keep yourself secure for the duration of your remaining time in your home. State Pension and other benefits will help, as will any pension you’ve accrued over your working lifetime, but then you may still find you need more support.

Equity release can unlock the value of your home and let you remain in it until you either move into full-time care or you die. And that cash lump sum can be used to supplement your pension income.

You can also choose a drawdown lifetime mortgage where you only withdraw the money you need, without having to build up interest on the full amount. This could be ideal if you want just a smaller chunk to support you, with more available should you need it further down the line.

You’ve worked hard to reach retirement age and you should enjoy it. By unlocking the equity locked in your home you don’t need to worry about how you’ll make ends meet, and you don’t need to make immediate repayments, so you’ll be able to properly enjoy your latter years.

Equity Release: People With Debt Issues or a Poor Credit History

Equity release is a loan that works in much a similar way to a mortgage. As it’s a secured loan, and it’s borrowed against the equity you’ve already got in your home, you don’t need to worry if you have a poor credit history – unless you have an active CCJ or you’re going through bankruptcy, where you may lose your home, your credit score won’t have an impact on your lending decision with most providers.

This makes equity release a very attractive proposition to anyone in their retirement years who has managed their credit badly in the past, since many other options such as a new mortgage or other unsecured loans may not be available to them. If you’ve had issues with debt historically but you need money in retirement, then equity release could be the ideal solution.

Equity release can also be useful if you have current debts that you need to pay off. As you get older your income will start to get lower, particularly when you retire from work and start relying on your pension.

If you’re still paying off your mortgage, or you have credit cards and other debts that are weighing heavily on your budget, then equity release can clear those for you. You won’t have to make immediate repayments, and you can get your finances back on track.

Equity Release: Anyone With No Children

The major downside to equity release is the impact it has on your estate when you’re gone. Because interest compounds, you’ll end up owing a lot more than you originally borrowed. For most people that’s acceptable because the benefits of a cash lump sum upfront with no immediate repayments are worthwhile or necessary.

Equity release really comes into its own when you have no one that you want to pass your estate onto. Many people choose not to raise a family and, when you reach retirement age, it may just be you and your partner.

You will no doubt have friends who you may wish to leave your assets to but you might (rightly) decide that the benefits of your hard work in building up equity should be yours to enjoy.

Remember that one of the key benefits of equity release is the guarantee that you get to keep living in your home for the duration of your life. If you sold your home on the free market you’d make more money than releasing equity but you’d then have to move out.

Even if you sold it to a letting agent, you wouldn’t necessarily be guaranteed to live there until you move into care or die. Equity release ensures that your home stays your home, even if you don’t own the deeds under a home reversion scheme until you no longer need it.

Source: Equity Release Councils Autumn 2019 Market Report

As you get older, you’re more likely to want to stay in your home, as these statistics show. If you don’t have dependents to worry about, equity release could be the way to let you really enjoy that money you’ve built up without having to sacrifice the home you’ve made for yourself.

And even if you do have dependents it is still a viable option to raise funds when you need them.

Equity Release: Take Advantage of Your Financial Advice

Your financial adviser is obligated to take you through the various financial options open to you. Use this time wisely to ask as many questions, and be honest and upfront about your retirement plans.

The only way you’ll know if equity release is good for you is if you understand the full implications and how your circumstances, including whether you want to buy a holiday home, or potentially downsize in future, would affect the suitability of a loan.

In Summary

Equity release schemes can be useful to many people, and there is no one perfect customer. Depending on your financial situation, your retirement intentions and your age, equity release might be the ideal solution for you.

You can learn more about equity release by reading our further guides on our website, which cover everything from interest rates to eligibility and even early repayment options.

How Can Money Savings Advice Help You With Releasing Equity?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.