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Derin Clark

Derin Clark

Online Reporter
Published: 06/12/2021
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The number of homeowners aged over 50 unlocking equity from their property to pay for home renovations almost doubled in the three months leading up to September compared to the previous three months, according to research from Hodge Bank.

The bank found that the number of older homeowners using products that allow them to release equity from their homes to pay for home improvements increased from 12% to 22%.

Although there are several products that allow homeowners to release equity from their properties, including retirement interest-only mortgages (RIOs), one of the most common ways to do this today is via a lifetime mortgage, often referred to as equity release.

According to Simon Gray, managing director at equity release advisory firm HUB Financial Solutions, equity release can be a good way to pay for home adaptions for those in later life who want to remain in their current home.

He said: “It’s very common for our lifetime mortgage clients to release equity to pay for home improvements and adaptations. Just over four in 10 of the customers we advised intended to spend some of the money adapting or improving their homes and the average amount they expected to spend was just under £10,000, although some were six-figures or more.

“Home improvements may mean spending relatively large lump sums now to provide benefits over many years into the future. Those benefits may be bringing the house up to a higher standard, making it more comfortable to live in and more affordable to run. That could be repairs, improvements such as new windows to cut future energy bills, or redecorations. These kinds of changes are seen as investments too as they usually increase the value of the home and cut costs.

“People who intend to keep living in a home right through later life may also at some point need adaptations such as ramps, stairlifts and new bathroom or kitchen fittings.

“Many retired homeowners do not have large cash reserves to pay for this kind of work, so they need help finding options. The flexibility of modern lifetime mortgages makes them more accessible to greater numbers of people. For example, we expect more new borrowers to make use of the interest-serviced feature, opting to pay some of or all the monthly interest on their loans out of income. That gives homeowners access to the lump sums they need at competitive rates while giving control of the speed at which the loan grows in the future.”

Although equity release can be a good choice for those looking to make home improvements later in life, those considering this option should be aware that it can have a long-term impact on finances, particularly on the inheritance the borrower leaves.

How does equity release work?

Equity release allows homeowners to release equity from their home using a loan that does not have to be repaid during the borrower’s lifetime, unless they move into permanent care. Interest, however, does accumulate on the loan, which means that when the loan is repaid through the sale of the borrower’s home, it can significantly impact the profit made from the sale of the house.

In recent years the equity release market has become more competitive, which has resulted in more flexible products becoming available, for example plans that allow borrowers to make partial or interest repayments, as well as falling interest rates on loans.

Despite these changes, those considering equity release should carefully consider their options before making the commitment. Gray added: “Releasing equity is a major long-term financial decision and that’s why everyone must receive professional advice before making a decision. A good quality professional adviser will explore all the options for raising the funds, including making sure all State benefits are being claimed, and then ensure the client is only borrowing what they need and is comfortable with the terms and conditions before they commit.”


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