More than half of UK savers do not expect to have enough to retire on, according to research from insurance firm LV=. It found that almost six in 10 (58%) non-retired UK adults aren't confident they will have saved enough for a comfortable retirement, and that 39% would consider using property wealth as a source of retirement income.
Equity release enables homeowners to exchange some of their home equity for tax-free cash payments. It can be taken as a lump sum, smaller withdrawals over time or a mixture of both, and products are typically only available to those aged 55 and over. The two types are lifetime mortgages, which are more common, and Home Reversion Plans.
Lucie Spencer, partner at wealth manager and financial planning firm Evelyn Partners, said: "Equity release may not be the right approach for everyone, and it could be that it is more costly than drawing down other assets, so should be considered alongside other options."
Drawbacks include interest building up significantly over time, which can reduce what beneficiaries receive or leave insufficient funds for care. Spencer said: "The whole property could end up being owed [to the equity release company] once interest has been rolled up and the debt can increase substantially due to compounding [interest] which could significantly impact the amount of assets you leave behind to children or other family members." Some products carry a 'no negative equity guarantee', meaning the estate will never owe more than the property is worth when sold.
Other considerations include early repayment charges on some products, potential impact on eligibility for means-tested benefits such as Pension Credit, and conditions some companies attach, such as not smoking in the property or repainting the home. Spencer advised involving family members who will deal with the estate, saying: "Most of the complaints [we notice around] equity release are when the kids don't know [it's been taken out]."
Alternatives include downsizing, which can free up equity and may lead to lower council tax, energy or other household bills, though moving costs such as conveyancing, surveys, removals and estate agent fees must be factored in. Retirement interest-only (RIO) mortgages, generally designed for those aged 50 and over, can be a cheaper alternative to lifetime mortgages because interest isn't allowed to grow each month. Spencer advised those considering equity release to take professional advice from a Financial Conduct Authority-authorised financial adviser, adding: "I'd strongly recommend doing so with an adviser who is a member of the Society of Later Life Advisers, who has specialist expertise in this area."