Retirement options: unlock your home's value

Harvey Jones

“Equity release” (ER) is a way of borrowing against the value of your house while still being able to live there. You can take either a lump sum or a regular income. It had a bad reputation in the past—with early, unregulated products you risked repossession if stock markets tumbled—but is now fully regulated by the Financial Services Authority. For pensioners struggling to meet bills despite living in properties worth hundreds of thousands, it may be the best solution.

Two new changes in the law might make ER more attractive, says Andrea Rozario, director general of Safe Home Income Plans, the trade association for ER. Previously, if the ER payout pushed their savings over £6,000, pensioners faced cuts in means-tested benefits (such as pension credit or council tax benefit), leaving them little or no better off. But from last November, that threshold was lifted to £10,000.

The second change will only benefit older pensioners. If you were claiming pension credit, the Government used to review your income and assets after an Assessed Income Period—usually 5 years. But now you need no longer report financial changes after the age of 75. “If you take out an ER scheme from then, you shouldn’t lose any means-tested benefits you currently receive,” Rozario says.

The most popular scheme is called a lifetime mortgage: the interest on your loan accumulates and is repaid along with the capital when your house is sold after you and your partner die or go into care. Any excess can be passed on as part of your estate. Alternatively, under a home reversion scheme you sell a percentage of your property, with the rest a guaranteed inheritance for your children.

With both schemes, the older you start the more you can raise, because the lender probably won’t have to wait so long to get their money back. Plans generally don’t make sense for people under 65. Check for a “no negative equity guarantee”, so that even if property prices collapse, you can never owe more than your home is worth.

Get independent advice on whether ER is right for you or your parents—companies such as Key Retirement Solutions and Just Retirement specialise in this. Consider alternatives, such as moving to a smaller home, and check that all benefits are being claimed.

Find out whether equity release is right for you with the Reader's Digest Equity Release Calculator.

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