10th Jul 2023
Equity Release
By Ashley Shepherd
Martin Lewis’ view on equity release is that it could be a good option if you’re over 55, need to increase your income and are not concerned about leaving an inheritance. However, he states that equity release can be expensive and says to consider downsizing your property first as a means of raising extra cash.
Releasing equity isn’t suitable for everyone and it can be risky if not arranged carefully, so Martin Lewis does advise caution and recommends you consider all the alternatives like downsizing first.
Who is Martin Lewis?
Journalist, tv and radio presenter Martin Lewis is famous for saving money. Founder of UK consumer website Money Saving Expert, he has his own TV show and regularly appears on ‘This Morning’ and ‘Good Morning Britain’. A successful campaigner, Lewis has driven change with banks, PPI and council tax.
Martin Lewis is quite simply the ‘people’s champion’ who is trusted by millions. Here’s what the Money Saving Expert thinks about equity release.
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What does Martin Lewis say about equity release in 2023?
Martin Lewis says equity release could be worth considering if you want to access money tied up in your home but advises caution. A lifetime mortgage from an Equity Release Council member is a secure way to boost your money without making monthly repayments, however there are consequences to consider.
Mr Lewis’ guide to equity release explains how releasing equity lets you unlock the value of your property, giving you a cash lump sum. He details how home reversion plans and lifetime mortgages work and that the loan plus interest is only repaid once you die and your property is sold.
The money saving expert highlights some of the different lifetime mortgages available and how you can now choose to repay some of the interest, or just drawdown the money you need and leave the rest in reserve.
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Martin Lewis on the cost of equity release
Martin Lewis’ equity release advice also includes details on the cost of equity release, and the fact that interest rates can be higher compared to standard residential mortgages. For example current annual interest rates range from 6% to 8%.
Also, as the interest is compounded, which means you pay interest on the loan plus the interest already accrued, the size of the loan grows much quicker.
For example with an interest rate of 6%, an equity release loan of £50,000 would increase to £90,970 over 10 years.
To get the full picture however you also need to take into account any increase in property prices over the same period, which may reduce the impact the loan will have on your equity.
For example:
| A property is worth |
£250,000 |
| Tax free cash released from property |
£50,000 |
| Assuming a 6% rate of interest the loan will have grown in 20 years to |
£165,510 |
| Average property increase according to Government House Price Index |
£796,000 |
| Amount of cash equity left to beneficiaries |
£630,490 |
So as you can see in this example, based on historic average rates of growth, the value of the property has increased sufficiently to leave a substantial amount of inheritance, even after taking into account the equity release loan. Please note that over time inflation will erode the value of the amount in real terms.
Is downsizing an alternative option to equity release
One of the main points Martin Lewis makes in his guide to releasing equity is to consider downsizing first. Downsizing to a smaller property may provide the excess cash you need, as well as giving you the opportunity to find a property that is more suitable to later life, for example with fewer stairs.
However, if downsizing is not cost effective because of estate agent and moving fees or means moving to another location that leaves you feeling isolated, Martin Lewis thinks a lifetime mortgage could be worth looking into.
If you are considering downsizing, Martin Lewis recommends to do it sooner rather than later. In his experience, people in their 60s frequently feel they are too young to downsize. However, in later years when money becomes more of a consideration, they feel they’re then too old to move.
Martin Lewis equity release advice - 4 top tips
If you're considering releasing equity from your home, Martin Lewis' advice is to:
- "Only borrow the amount you need"
Drawdown lifetime mortgages let you keep a cash sum in reserve, so you can access the money as and when you need it. You only pay interest on the money drawdown, not the cash held in reserve, which means it’s cheaper than taking the cash in one go.
- "Use a member of the Equity Release Council"
The Equity Release Council works with the Government to promote safe equity release products , ensuring the security of homeowners. All ERC members abide by the ‘no negative equity guarantee’ that ensures you will never owe more than the value of your home.
- "Get professional equity release advice"
Use the services of either an independent mortgage broker or IFA that is qualified to sell equity release to ensure you get the best advice.
- "Be aware of any impact to benefits"
The cash sum you receive through releasing equity can affect any benefits you may receive such as universal or pension credit. A professional equity release advisor should be able to help you with this.
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So, what does Martin Lewis really think about equity release?
Martin Lewis equity release guidance is to explore the alternatives first and seek professional advice. He thinks that releasing equity isn’t right for everyone and it will mean less money for family to inherit. However, Martin Lewis also advises that when making a decision, you should prioritise your own standard of living first.
And finally, if you decide that equity release is the best option for you, to choose a company that is a member of the Equity Release Council.
More information on releasing equity from your home
Releasing equity is an important decision and whilst the information Martin Lewis provides is useful, there is more you should know.
For example: