Martin Lewis says that equity release could be a good idea if you’re over 55, need to increase your income and are not concerned about leaving an inheritance. However, he states that the compound interest can be expensive, so to consider downsizing your property first as a means of raising extra cash.
To help you understand what Martin Lewis thinks of equity release lifetime mortgages, I have summarised his views and the comments he has made on his website, videos and TV shows.
Originally famous for being the founder and editor-in-chief of the moneysavingexpert.com website, financial journalist Martin Lewis is recognised as the UK's leading consumer champion and is trusted by millions of people.
He has been awarded a CBE for his services, has his own TV Show ‘The Martin Lewis Money Show’ and is often featured on This Morning and Good Morning Britain.
Read the full article or jump to Martin Lewis’ top tips:
- Consider downsizing
- Borrow as little as you can
- Make repayments if you can
- Get professional advice
- Check for any impact on benefits
- Involve your loved ones
For clarity: Over50choices is a publisher of information and not connected to Martin Lewis. This article reflects his views and opinions, compiled from various sources by Over50choices.
What does Martin Lewis say about equity release?
Martin Lewis says that equity release could be a good idea if you’re over 55, need to increase your income and are not concerned about leaving an inheritance. However, he states that the compound interest can be expensive, so you should consider downsizing your property first as a means of raising extra cash.
In addition to compound interest, Martin also says that you will pay between £1,500 to £3000 on setting up your equity release plan; which includes any advice fees, valuation and legal fees.
When asked in an episode of ITVs Martin Lewis Money Show Live if it was the right decision to release equity on a property, Martin Lewis said “Releasing equity on your property needs to be done when you need the funds. If you don't need the funds, don't do it.”
Does Martin Lewis recommend equity release?
Whilst Martin Lewis does not recommend equity release, he does acknowledge that it can be a sensible and viable option for some people. Whether it’s right for you will depend on your own situation. He recommends that you should always explore the alternatives first and take professional advice from an Equity Release Council approved member.
Does Martin Lewis give advice on equity release?
Whilst Martin Lewis does not give specific advice on individual circumstances, he does offer general advice on his TV Show and on his website, which includes these 6 tips:
1. Consider downsizing first
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 home that is more suitable to later life, for example with fewer stairs.
However if you are happy to consider downsizing, Martin Lewis recommends you do it sooner rather than later. In his experience, many 60 year olds put the decision off, only to find they are too old to cope with the hassle of moving home in their latter years.
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.
2. Borrow as little as you can as late as you can
When you have explored other options and decided that releasing equity is right for you, only release the amount you need.
You could opt for a drawdown lifetime mortgage which lets you keep a cash sum in reserve, allowing you to 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.
3. Make repayments if you are able to
Whilst you may release cash from your home for specific things, if you have sufficient funds (perhaps you didn't use all of the money you released), you can reduce the effects of compound interest by making ad hoc or regular repayments.
Over50choices example; Say you borrow £50,000 at an interest rate of 6%, over 20 years this will have grown to £165,510.
If however you repaid £5,000 at the end of the 2nd year, the interest will to grow to £150,826. A saving of more than £9,684 in interest charges over the 20 years and considerably more should the loan be in place for a longer period.
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“To get the full picture of costs, 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, 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. Just keep in mind that inflation will erode the value of the amount in real terms.”
4. Get professional advice and choose Equity Release Council (ERC) members
Use the services of either a mortgage broker or IFA that is qualified to sell equity release and a member of the ERC, to ensure you get the best advice.
The Equity Release Council (ERC) 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.
5. Check if equity release will impact state benefits
Check whether releasing equity could have an impact on your state benefits, now and in the future. As the cash sum you receive will form part of your savings, it could affect any means tested benefits you receive such as universal or pension credit. A professional equity release adviser should be able to help you with this.
6. Tell your loved ones
Equity release is a lifetime commitment that will impact any inheritance you plan to leave. Involving your loved ones in the process from the start will ensure they are fully aware of your situation, so there will be no nasty surprises when the time comes.
Should you release equity?
In conclusion, Martin Lewis makes some good points that readers and viewers could find helpful. I would say that the information he provides is a good place to start, but you should do further research and when you’re ready, speak to a qualified equity release adviser to help you decide whether it's right for you.
Releasing equity is a big decision. You may find it useful to use our calculator to understand how much cash you could release from your home and then speak with an adviser. Over50choices works in association with Age Partnership who are a leading UK broker. Whether you have just started looking or you are in a position to proceed, they will be happy to answer any questions you may have and discuss how equity release could work for you.
If you're starting to think about funeral planning, you may also be interested in what Martin Lewis thinks about prepaid funeral plans.