February 2023

Is equity release a viable option for supplementing your income in 2023?


As you approach retirement, there’s a good chance you’re considering the different ways to support yourself financially so you can live the lifestyle you’ve always dreamed of.

Though, the cost of living crisis has put the squeeze on peoples’ finances around the country. Even if you’ve built a large pension pot, you could quickly come to realise that this may no longer stretch far enough to help you achieve your goals. 

One place you may not have thought about as a source of retirement income is your home. Your property might be one the single largest assets you own, with the Office for National Statistics measuring the average UK home to be worth £294,000 in December 2022 when data was last available. 

As a result, you may want to consider an equity release product, such as a lifetime mortgage, allowing you to access this value to support your lifestyle in later life. 

In fact, FTAdviser states that there has been a growing number of older borrowers using equity release in recent months to supplement their retirement income amid the cost of living crisis.

But while equity release may have potential benefits, does it fit your financial goals for retirement? Read on to find out everything you need to know about equity release, and whether it would be a viable option to boost your income during retirement in 2023. 

Equity release allows you to free up the value tied up in your home

Equity release is designed to help over-55s release cash that is tied up in their property, without needing to downsize and move home. To qualify for equity release, you must own your home.

One popular equity release product is a lifetime mortgage. This essentially involves borrowing money from the value of your home. This is then later repaid from the sale of your property when you eventually move into later-life care or pass away.

While the loan does accrue interest, you typically won’t make monthly repayments on it as the interest “rolls up” over time. Then, the total interest is paid back when the property is sold. 

It’s worth noting that some lifetime mortgages will allow you to make monthly interest payments if you so wish. 

Equity release can supplement your income during retirement 

If your home has risen in value since you bought it, or you’ve now paid off your mortgage and own it outright, you may be thinking about ways to access the value tied up in your bricks and mortar.

Downsizing to a cheaper home to do this may seem tempting. However, moving home is one of the most stressful moments in our lives – in fact, Mortgage Strategy states that moving house was voted the most stressful life event by Brits. This is especially the case during retirement. 

This is where equity release could benefit you, allowing you to free up some of this value without having to sell your home.

The money raised from equity released could be used to pay for any one-off costs, such as a long-overdue kitchen renovation, or even a dream holiday. 

Also, there’s no better feeling than helping your loved ones when you’re retired. So, the money freed from your property could be used to provide financial assistance to younger members of your family. With a gift or loan, your next of kin could buy their own home, or even pay for their education.

While equity release comes with benefits, you could end up accruing interest

While equity release can offer these benefits, there are some key things you should remember before you take out new borrowing on your home.

Firstly, equity release loans generate interest, which means that if you live for many years without paying off any interest, you could eventually face a large interest bill. 

In fact, the interest rates on equity release products can sometimes be more expensive than those of traditional mortgages, meaning if you can afford to make monthly repayments, there may be other, more appropriate lending options out there for you.

Since the money will typically be repaid when your home is eventually sold, it’s also your responsibility to ensure that the house remains in good condition. This means you’ll need to consider any upkeep and maintenance costs for your home.

And, if you receive any means-tested benefits, you could see your eligibility for these affected by equity release, as having more cash in your pocket could push you above the thresholds at which you would receive these.

Is equity release a viable option to supplement your income in 2023?

Now that you know the benefits and potential downsides of equity release, you’re likely wondering whether it’s a viable option to supplement your retirement income in 2023.

Many lenders pulled a significant number of equity release products from the market in recent months, and while some products have returned, many have not. In fact, inews reports that equity release lenders pulled roughly 70% of lifetime mortgage deals following the mini-Budget last year. 

Some financial advisers have noted this has led to less choice, and a lack of “whole-of-market” advice. As such, it may be worth considering other lending options to supplement your income in 2023.

Before deciding whether equity release is right for you, it’s important to take note of rolling interest. Some equity release products allow for monthly interest servicing so the debt doesn’t build up over time.

Get in touch

Equity release is just one of many options you might have for living your desired lifestyle in retirement. To find out more, please email info@holbornfinancial.com or call 020 8946 8186 to get in touch.

Please note

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.