Equity release has changed a lot over the last 10 years.
Where it was once an area of personal finance that people approached with caution, a host of new regulations from strict governing financial bodies now make equity release – or ‘lifetime mortgages’ as they’re often known – a safe and attractive prospect for people over the age of 55.
While equity release is growing in popularity, how the products work and what the released funds can be used for sometimes still isn’t clear – so we’ve showcased a number of real life situations from people who have used equity release services – and what they’ve used the funds on.
Equity release for home improvements
In 2016, Gary and Elaine used equity release to make some home improvements that would mean their house truly felt like a home as they got a little bit older.
“We moved into our new house in 2013 but it never really felt right. We bought because of the location but we’d compromised on size a little – and to be totally honest, the place just looked a bit tired, like it could do with an overhaul. We’d priced up an extension, new windows and some lovely new front and back doors – but it was all just out of our price range. It felt like a real shame as the house stood out as being a bit unloved. We knew these things would transform the place.”
The funds from their previous house sale meant they had no outstanding mortgage on the new property – but with just pension and a small part-time income, it was going to be difficult to raise the funds to make the improvements that would make their new home exactly right.
“We had friends who’d used equity release, so we knew it was possible, but we’ve never really been internet people, so we asked our eldest daughter to help us look into the idea. She was a little unsure at first, but she got a lot of information from the Equity Release Council that we read through together and it definitely eased her mind. Equity release wasn’t originally the first option – we actually considered a remortgage to release some cash, but the bank was very hesitant because of our low income and our ages. It’s funny really, our age actually helped us get a better interest rate with the lifetime mortgage!”
Elaine and Gary used a ‘lump sum’ lifetime mortgage which meant they could easily afford to make the improvements they wanted. It even left plenty to make the house transformation a little bit easier:
“We planned a mini-cruise that meant we were away when the new windows and final decorating was ready to be done! It was so nice to come back to a house that was transformed, especially as it’s going to be low maintenance as we get a little older.”
Equity release for special family time
Last year, Pam decided that a static caravan holiday home would be the perfect thing to bring her young family together – so she used equity release to make it happen.
“The last time we all got together was on my 60th birthday – and even then everything felt rushed. I’ve got a son and one set of grandkids in London – and a daughter with a family in Manchester. Getting them all together takes a lot of planning! We’d paid the mortgage off with my husband’s pension lump sum and we’d always talked about having a little holiday home caravan by the coast – but since he passed away, it didn’t feel like something I’d be able to afford by myself. I was actually my son who brought up equity release, I didn’t know much about it.”
After some family discussion, Pam met with an equity release advisor who talked her through some options.
“They were very good – it wasn’t like they were selling me a product, it was like a chat to see if it would be a good fit for me, my family and my circumstances. I’d looked into remortgaging the house, taking finance on the caravan and even moving to a smaller house, but equity release seemed to be the only option that ticked every box I was looking for. I’d talked with my son and daughter in some detail – everyone agreed that a caravan would be fantastic. It gives the kids somewhere to stay when they come and everyone agreed that we wanted some nice family memories while the grandkids are still young.”
Pam used a drawdown lifetime mortgage which was ideal for her circumstances, it let her take a lump sum when she purchased the caravan – and also lets her take the amount she needed when her site fees rent bill is due each year. Pam’s caravan gives her and the family the perfect base for finding great things to do with kids when they’re on holiday – ideal for making lifelong memories.
Equity release to ease the burden of debt
Margaret and Ian used equity release to clear a number of outstanding debts that were still hanging over their heads after retirement.
“The last 2 years of work had been a real nightmare. I worked for the same company for 21 years and they shut their doors unexpectedly one day, leaving hundreds of people unemployed. We both got part-time jobs, but they just didn’t cover our outgoings.”
Margaret and Ian used loans and credit cards to help them get through the difficult couple of years before they could access their pensions – so when they did, they were faced with losing a lot of their income to debt repayments.
“We looked at remortgaging, but they essentially told us that we were just too old, so we looked for different options. When we first talked about equity release we weren’t sure – we thought it would put our time in the house at risk, but it quickly became apparent that just wasn’t the case.”
Lifetime mortgages now ensure that a person’s right to stay in their home is protected, in fact, Financial Conduct Authority (FCA) rulings say that a lifetime mortgage/equity release lender cannot enact any claim to the property until the occupants pass away or move into long term residential care.
“Before we made any decisions, we wanted to talk to our kids. Paying off our debt without equity release wasn’t going to be impossible – so we weren’t sure if we should just tighten our belts and get on with it – or release some of the money tied up in the house. The kids decided much more quickly than we did! They all said they wanted us to enjoy our retirement and that they thought a lifetime mortgage was a positive idea. Even though they okayed the idea, we still wanted to make sure we left some money for them, so we talked to our advisor about what we could do.”
A detailed discussion about what Ian and Margaret owed and how much their house was valued at led the couple to discover they could draw an amount which cleared what they owed – and left a very good size amount of money that would be left for their children and grandchildren as inheritance.
“We were over the moon. We’d felt angry that circumstances had meant we’d had to rack up debt just to get by – so we were furious when we thought it would mean we could look after our family after we’d both gone. When we worked out that there’d be enough for a little nest egg it felt like such a relief.”
When they met with an equity release advisor Ian and Margaret took their son, so they had a second opinion on all the terms, conditions and paperwork. A short time later, they were debt free and content in the knowledge they could enjoy their retirement comfortably, knowing their kids and grandkids were looked after long term.
Doing some equity release homework
Whether equity release sounds right for you – or for friends or family – it pays to do some research.
The Equity Release Council now oversees all lifetime mortgage and equity release lenders and offers some excellent information about a borrower’s legal rights and protection. They also have some in-depth FAQs that explore some of the questions and concerns that people may have about lifetime mortgages.
If equity release looks like it could be a good option for you or someone you know, you can use this handy equity release calculator by ERS to find out how much you could receive.
This is a collaborative post.