Why Do People Use Equity Release? The Six Most Common Reasons
Why Do People Use Equity Release?
Most people do not wake up one morning wanting a lifetime mortgage. They wake up wanting something else. A mortgage cleared before the interest only term runs out. A deposit for a daughter who cannot save one on a Preston salary. A downstairs bathroom. A year where the boiler, the car and the roof do not all have to be argued about.
Equity release is simply a way of turning some of the value locked in your home into money you can use, without selling up and moving. The reasons people use it are ordinary. What is not ordinary is the decision itself, because a lifetime mortgage is likely to be the longest running financial commitment you ever take on.
Here are the reasons we see most often across our later life cases, what each one tends to look like in practice, and what to weigh up before you commit.
1. Clearing an existing mortgage
This is the single most common reason we are approached, and it is usually urgent rather than optional.
A large number of homeowners now in their late fifties and sixties took out interest only mortgages in the 1990s and 2000s. The monthly payment covered the interest, the capital was supposed to be repaid at the end by an endowment, an investment, a bonus, or simply "we will sort it later". For a lot of people, later has now arrived. The term is ending, the balance is still there, and the lender wants it back.
Selling the house is one answer. For many people it is not the answer they want, particularly if the home is paid for in every emotional sense and the local market does not offer anything smaller worth moving to.
A lifetime mortgage can repay the outstanding balance and remove the monthly payment entirely, because the interest can be allowed to roll up instead. That frees the monthly cash flow, which for a household living on pension income can be the difference between comfortable and stretched. The trade off is that the debt grows over time rather than shrinking.
It is worth knowing that having a mortgage already does not rule you out. We cover that in detail in Can I Get Equity Release If I Have an Existing Mortgage?, and if your term is ending soon it is worth reading alongside What Mortgage Options Are Available if You Are Over 55?, because a retirement interest only mortgage or a standard remortgage may suit you better.
2. Helping family
The phrase people use is "living inheritance". They would rather see the money do something useful now than have it distributed when they are gone.
In practice that usually means a deposit for a child or grandchild who is otherwise stuck renting, sometimes a lump sum towards a wedding, occasionally help for an adult child going through a divorce or a business setback. Gifting from housing wealth has become one of the biggest single sources of first time buyer deposits in the UK, and a lot of that money starts life as equity in a parent's home.
There are three things to think through before you gift.
The first is that the money is no longer yours. If your circumstances change, you cannot ask for it back, and the interest on the borrowing keeps accruing whether the gift worked out or not.
The second is fairness between children. If one child gets a deposit now and the estate is smaller later, that needs saying out loud rather than discovering after a funeral.
The third is inheritance tax. Gifts can fall outside your estate if you survive seven years, and the rules around this are not something to guess at. This is a conversation for your solicitor or a tax adviser rather than a rule of thumb from a blog.
If the goal is specifically to get a child onto the ladder, compare the cost against the alternatives first. A joint borrower sole proprietor mortgage can sometimes achieve the same outcome without you borrowing anything at all.
3. Consolidating debt
Credit cards, car finance, a loan taken out to cover a gap in income. Unsecured borrowing that was manageable while there was a salary behind it can become heavy once income drops to a pension.
Rolling that debt into a lifetime mortgage removes the monthly payments, and the rate on the borrowing is usually far lower than a credit card rate. Cash flow improves immediately, which is why it appeals.
Be clear eyed about it though, because this is the reason that most often needs challenging. You are moving unsecured, relatively short term debt onto your home, over a term that could run for twenty five years or more. A credit card balance paid down in four years costs what it costs. The same balance rolled up at a lifetime mortgage rate can end up costing more in total, even though the rate is lower, because nothing is being repaid along the way.
There is a sensible middle ground. Most Equity Release Council approved lifetime mortgages now allow penalty free partial repayments, so you can consolidate the debt to stop the immediate pressure and still chip away at the balance in the years when you have spare income. If the debt is genuinely short term, a repayment plan or a smaller borrowing arrangement may be the better answer, and we will say so.
4. Home improvements and adaptations
This splits into two quite different motivations.
The first is the improvement you want. A new kitchen, a bathroom that no longer leaks, windows, a conservatory, insulation and a heat pump. Money spent on a home you intend to stay in for the rest of your life, which is arguably the most logical use of that home's own value.
The second is the adaptation you need. A walk in shower, a stairlift, a downstairs bedroom, a level access entrance, widened doorways. These are the changes that keep people in their own homes for years longer than they otherwise could stay, and they are frequently far cheaper than the alternative.
Before you borrow for adaptations, check what help exists. Disabled Facilities Grants are available through your local council and can cover a substantial part of the cost of adapting a home for someone with a disability, and there may be local schemes on top. Grant money is better than borrowed money every time.
5. Topping up retirement income
Not everyone needs a lump sum. Plenty of people need a few hundred pounds a month to make the difference between managing and not.
This is where a drawdown lifetime mortgage tends to be the right shape. Rather than taking the full amount at the start, you agree a facility with the lender, take an initial amount, and leave the rest reserved for later. You only pay interest on the money you have actually drawn, which keeps the roll up dramatically smaller than taking everything on day one and leaving it in a savings account.
We covered the mechanics of this in Using Equity Release to Boost Your Retirement Income, and the roll up interest calculator will show you how a balance grows over time, which is the number most people underestimate.
One warning that matters more here than anywhere else. Money sitting in your bank account counts as capital for means tested benefits. Pension Credit, Council Tax Reduction and Universal Credit can all be reduced or lost if your savings rise above the thresholds. Releasing a large lump sum to supplement income can cost you benefits worth more than the money you released. Drawdown handles this far better than a single large advance, but it needs checking case by case before anything is signed.
6. Lifestyle and the things you retired for
Travel. A camper van. A wedding anniversary trip that has been postponed twice. A holiday home, or a share in one. Helping fund the early retirement itself so you stop work at 62 rather than 67.
There is nothing frivolous about this, and no adviser worth their fee should treat it as though there is. If you have spent forty years paying for a house and you want to spend some of it while you are fit enough to enjoy it, that is a legitimate financial objective.
The discipline to apply is proportion. Borrowing to fund an experience is very different from borrowing to fund an ongoing lifestyle you cannot otherwise afford. A one off release for a specific plan is straightforward. Repeated drawdowns to cover a spending level that outpaces your income is a slower version of the same problem you started with.
Other reasons we see regularly
Beyond the main six, several situations come up often enough to be worth naming. Divorce or separation in later life, where one party needs to buy the other out of the family home. Funding care at home rather than moving into residential care. Buying out a leasehold or extending a short lease. Clearing a Help to Buy equity loan. Providing capital for a business or an investment property. Straightforward estate planning, where the release is part of a deliberate strategy agreed with a tax adviser.
When equity release is not the answer
The honest position is that a good later life adviser turns down as many cases as they arrange.
Equity release is usually the wrong route if you are likely to move within a few years, because downsizing would achieve the same thing without the interest. It is wrong if the amount you need is small and you have savings or income you could use first. It is wrong if you can comfortably afford monthly payments, since a retirement interest only mortgage or a standard mortgage into retirement will almost always cost less overall. It is wrong if the borrowing would wipe out means tested benefits worth more than the money released. And it is wrong if you are being pushed into it by someone else, whether that is a family member or a firm.
Those alternatives are all set out on our alternatives to equity release page, and we will always take you through them before recommending anything.
The safeguards that apply whatever your reason
Every plan we recommend meets Equity Release Council standards. That means a no negative equity guarantee, so your estate never owes more than the property sells for. It means the right to remain in your home for life or until you move into long term care. It means the right to move to another suitable property and take the plan with you. And it means the right to make penalty free partial repayments, so you can control how much the balance grows if your circumstances allow.
You will also have independent legal advice from your own solicitor, and we encourage you to involve your family in the conversation from the start rather than presenting it as a decision already made.
Our advice fee for equity release and retirement mortgage cases is £1,495. It is only payable if your case completes, nothing is payable upfront, and it is taken from the funds released. If we look at your situation and conclude that borrowing against your home is not right for you, you pay nothing.
Talk it through before you decide
If one of the reasons above sounds like yours, the useful next step is a conversation about whether it stacks up, not a product recommendation. We will look at what you are trying to achieve, what it would cost over the likely term, what it does to your benefits and your estate, and what else could get you there instead.
