By Paul Lewis
There is around £1 trillion of wealth sitting in the bricks and mortar of the homes owned by elderly people. And record numbers are releasing some of that wealth to take away financial worries in later life or just to make their time easier or more fun.
It’s called “equity release” because you set free some of the “equity” or value in your home. The most common way is to borrow an amount of money against the value of your home. During your life you do not repay the capital or pay the interest that rolls up year by year. When you die or go into a care home the house is sold and the total bill paid.
You can use the money raised for anything you like. Paying off debt on credit cards or loans is popular. Maybe you have an interest-only mortgage coming to an end and want to use it to pay that off and stay in your own home. Equity release can also be a way of raising the money to help a child or grandchild buy their first home. Others use it to upgrade the kitchen or bathroom to something more modern and convenient – and easier to clean. You can even use it to share the value of your home with a partner if you are splitting up in later life.
Of course some of the money can always be used for fun. Going on that holiday of a lifetime while you still can. Buying a new car so you can get out and about more safely. Or just having more mini-breaks.
In the past, equity release got a bad name. But nowadays it should be totally safe. Don’t respond to adverts without checking that the firm is a member of the Equity Release Council. That means the scheme will come with a guarantee that the debt can never be more than the value of your home, and the advisers will be on your side, not theirs.
Your home must be worth at least £70,000 and some homes – such as retirement housing, ex-council property, and mobile homes – will not be accepted. Flats can be difficult.
Downsizing can be a cheaper alternative to equity release. If you have savings then there is no point in borrowing if you have money in the bank. And beware if you get means-tested benefits – they may be affected.