What can you use equity release for?

What can you use equity release for? main image

Equity release can offer financial help to homeowners aged 55 and over. The equity you release can be used however you choose and is only paid back once you die or move into permanent care. So, with no monthly repayments, you can free up extra cash without impacting your monthly income.

The following information explains why equity release could be a good idea for those seeking financial help in later life and how the tax free cash is most frequently used. 

What are the most common uses for equity release?

The reasons people release equity from their home varies although with the cost of living crisis, equity release is frequently used to clear some form of debt or reduce monthly outgoings. Here are some of the main reasons Over50choices customers gave for releasing money through equity release specialists Age Partnership:

Most popular uses of equity release

Repay a mortgage                       32%

Make home improvements         32%

Gift for family                                 8%

Repay loans or credit card           7%

Buy a car                                       6%

Boost income                                4%

A holiday                                       3%

Interestingly the second reason many people gave for releasing equity was to enhance their income either on the lead up to or during retirement.

How you could use equity release in 2024?

Here is a closer look at the most common reasons people use equity release:

Using equity release to pay off a mortgage

Paying off a mortgage is one of the main reasons people release equity from their home. Using the money tied up in your property this way means you can reduce your outgoings, as there are no monthly repayments to make.

And with the Equity Release Councils (ERC) new standard giving customers the right to make penalty free payments, should your finances improve, you have the flexibility to repay some of the loan, subject to your providers lending criteria.

Equity release for home improvements

Using equity release for home and garden improvements is another common reason for choosing a lifetime mortgage, the most popular type of equity release. In addition to helping fund a new kitchen or extension, you could use equity release to future proof your home.

Using the money you release to make adjustments like a stairlift or walk in shower, or paying for care at home could mean you stay in your property longer.

Releasing equity to help family

Another popular use of equity release is to help family financially, especially given the current financial climate. Whether it’s to help with education, the cost of a wedding or perhaps to get a foot on the property ladder, using the money you release this way gives you the opportunity to see for yourself how your family benefit from your gift - a so called ‘living inheritance’. 

Paying off loans and credit cards with equity release

In addition to repaying an existing mortgage, another common reason for choosing equity release is to pay off unsecured loans or credit cards. Using the money to pay off loans and outstanding debts can reduce your liabilities, providing greater financial security and peace of mind.

Equity release for life’s little luxuries

As the old saying goes, ‘you can’t take it with you when you go’ which is possibly why some people choose equity release to pay for a holiday. Your home is probably one of your greatest assets, so if you’re happy with how equity release works and the impact to your estate once you have gone, then why not enjoy the finer things in life.

Alternatively you may want use equity release to replace or buy a new car either for you or a family member. Whilst this may be a luxury from some, for others a safe reliable car can be an absolute lifeline. 

Equity release to fund retirement

Equity release can help retirees boost their retirement income, either by paying off existing debts to reduce outgoings, or by supplementing pension income, making life financially that bit easier. Currently, 75% of homeowners who release equity are over 65 years of age, so close to being, if not already retired.

And although increasing income wasn’t the main reason many people gave for releasing equity, it was the additional reason many people gave.

Remortgaging equity release

One reason for releasing equity that has grown throughout 2022 is remortgaging either to a better deal, or to release more money. Although a lifetime mortgage is designed to last the whole of your life, you still have the freedom to remortgage. Lifetime mortgages now offer greater flexibility but you will need to be aware of any early repayments charges.

Sadly, due to the current economic climate, the low interest rates of summer 2022 have disappeared, although comparatively favourable interest rates can still be found. Therefore, if you are considering a lifetime mortgage, it could be worth looking for one that gives you the flexibility to move once the financial climate improves.

Who can release equity?

Equity release is available to UK homeowners from the age of 55. You don’t have to be mortgage free but you will have to pay off any existing mortgage with the money you release.

Although around 20% of customers are under the age of 65, the average age of an equity release customer in 2022 was 68, that’s down from 70 years of age in 2021 - with the bulk of borrowers being between the ages of 60 to 80 years of age.

How popular is equity release?

Equity release is growing in popularity year on year, becoming part of older borrowers’ financial plans for the future. According to the Equity Release Council in 2022, over 100,000 people released equity from their home; an increase of 32% compared to 2021.

The average amount people released was around £133k but the amount of equity you could release will depend on your age and property value. 

How flexible is equity release?

As demand for equity release increases, so does the degree of flexibility. These days it is an ERC requirement that lenders allow you to make penalty free payments subject to your providers lending criteria. Plus, plans are widely available that let you repay some or all of the interest on an ongoing basis.

And with a third of schemes offering inheritance protection and two thirds provide downsizing protection, seeking professional advice could play an important part in choosing the right scheme for you.

For more information about equity release, read our helpful guide.

Or use our equity release calculator to see in seconds how much money you could release from your home.

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