Why people choose to use equity release

Retirement can be an exciting time; the 9-5 workday is now a thing of the past and the days are yours to fill. However, filling those days can be expensive, whether it’s from a desire to pack your bags and explore the world, or re-decorating your home. With cash tied up in property, many retirees are choosing to release this equity and through equity release are provided with the cash to complete their goals.

How Equity Release works

Equity release is aimed at older homeowners, typically over the age of 55, to turn the equity tied up in their property into tax-free cash. This money can be used however they wish, whilst still retaining ownership of their property.

The most common form of equity release is a Lifetime Mortgage. If you are over 55 you can take out a lifetime mortgage, a loan secured against your property. This loan doesn’t have to be repaid until your death, whereby the sale of the property can be used to pay off the loan. It is worth bearing in mind, however, that the interest will also be added onto the loan value.

Using the cash

A recent report by Key Advice details the number of ways in which homeowners used the cash freed by equity release, and how it helped to make a difference. The top five words used to describe the benefits of equity release from both a financial and social perspective were: freedom, helpful, happiness, security, and relief. The most common ways to spend the money, according to the report, are:

Paying off unsecured debt

Debt can affect us at any age, both young and old. Retiring with debt can be daunting and lead to unwanted stress. Debt is one of the top reasons those in later life opt for equity release, with 28% citing this as a reason in Q1 2021. Common debts include: credit cards, bank overdrafts and car finance.

Gifting

In Q1 2021, 26% of people used equity release for gifting, up from 20% in Q1 of 2008. With younger people struggling to get on the housing ladder, it appears older generations are wanting to show their support with a monetary gift. Additional research from Key Advice shows that grandparents gifted nearly £1million a day during the stamp duty holiday.

Will Hale, CEO at Key Advice, said: “With the Stamp Duty Holiday giving people an unprecedented opportunity to climb onto the property ladder, the Bank of Gran and Grandad has stepped up to help finance it.  This type of inter-generational generosity is more common than you think and even before this change, one in five equity release customers were using their housing equity to support younger family members.”

Mortgage repayment

When deciding to opt for equity release, you must be able to clear any secured debt that you currently have against your home, often a mortgage. However, you can use the money released from the equity to pay off your mortgage. In fact, using the money released to pay off an outstanding mortgage is one of the top reasons cited for choosing equity release, with 25% in Q1 2021.

Home/ Garden

Re-doing the home and/or garden in retirement is a popular course of action, this may be because their home/ garden needs adapting to suit the needs of an older generation or simply, retirees seek modernisation after spending more time at home. The Key Advice report cites the home or garden as the number one reason customers have taken out equity release, from 61% in Q1 2008 to 53% in Q1 2021.

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