Are you sitting on a lottery win in your own house?

Paul Lewis on the pros – and cons – of equity release

A retired couple embracing outside the front of their house.

Many older people have too little cash to do what they want or need, but live in a home that is worth a small lottery win. The way to set that prize free is called equity release.  You borrow money secured on your home – a lifetime mortgage.  The debt is not paid off until you die or go into long-term care. If you are part of a couple, that does not happen until both of you die or go into care.

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Suppose your home is worth £200,000 and you are 65. You will be able to borrow about £75,000 to do what you want with. You will be charged interest, higher than a regular home purchase mortgage, typically around four per cent but some are more and others less.  That interest is added to your debt each year and at four per cent that debt will have roughly doubled after 18 years. By then your house will probably be worth more than £200,000 and when you die there will usually still be value left to share among your children or heirs.

You can spend the money on anything you want – a new kitchen or bathroom, helping children or grandchildren buy their first home, paying off your own debts such as an interest-only mortgage. Or you can just use it to have a better life, go on holiday, have some fun. It is your money for you to use. Most children are fine with that.

Only ever use firms that are members of the Equity Release Council and give what is called a “no negative equity guarantee”. In other words, you or your estate will never owe more than the property is worth when it is sold. Always choose an independent financial adviser who will look at the whole market to find the best deal for you.

Equity release is not right for everyone. If you have savings, spend those before you consider it. If you are on means-tested benefits such as pension credit or help with council tax, they will be reduced. A good adviser will say “no” as often as “sign here”.  But used properly, the right scheme can be very liberating.

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