Sue Read
Former Adviser, Equity Release Council
Equity release can provide a lifeline, yet it’s one of the most misunderstood financial products there are.
When people think about equity release, they often dismiss it before they get the facts. That worries me because many older people could be missing out. Equity release can be transformative. It can pay for the nicer things in life, help loved ones with a deposit for their own home or just meet daily living costs.
Financial benefit of equity release
The average income for a retired couple is about £28,000, which is £6,000 short for a moderate lifestyle. Meanwhile, the average equity release loan is almost £102,000. That could meet the shortfall for 17 years — at a time when nobody wants to worry about bills. It’s not for everyone, and you should consider alternatives like downsizing or other types of mortgages, but it might help.
The most common form of equity
release is a lifetime mortgage. It’s
simply a loan for people over 55.
How it works through lifetime mortgage
The most common form of equity release is a lifetime mortgage. It’s simply a loan for people over 55. The debt is usually paid back from the sale of your property when you pass away or go into long-term care. So, what’s the catch? It’s true, lifetime mortgages can be more expensive than standard mortgages. Mid-2023, the average lifetime rate was 7.03%, and the average five-year residential fix was 6.34%.
However, it’s an unhelpful comparison. It ignores key benefits such as fixed or capped interest rates, the no negative equity guarantee and terms with no fixed end date. Furthermore, many older people struggle to qualify for residential mortgages. With a lifetime mortgage, there’s no income threshold or credit score to worry about.
Terms and conditions of equity release
If you choose — that’s right, choose — not to make repayments, at 7.03%, the debt doubles in about 10 years, but there are ways to prevent that. Drawdown plans allow you to take less now and usually more later when it’s hoped interest rates will drop. In addition, plans that meet the Council’s standards allow you to make penalty-free repayments to stop the interest building up. There are terms and conditions, but if you speak to one of our members, they’ll go through all your options as well as all the benefits and risks.