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Uses of Equity Release

Discover the uses of equity release mortgages

What are the uses of equity release?

The Uses of Equity Release Mortgages

The reasons for Equity Release are diverse with homeowners over the age of 55 able to use funds for a variety of reasons, which is in part due to mortgage lenders having very few rules regarding how property wealth should be spent.

However, there does appear to be a specific rationale behind the choices:-

REPAYMENT OF EXISTING MORTGAGE: Latest figures(1) from 2021 show a massive upturn in the usage of Lifetime Mortgages for discharging an existing residential mortgage. A significant number of home-owners want to reduce their monthly outgoings and minimise or eradicate their monthly mortgage payments completely.
Others hold interest only mortgages which have come to the end of their fixed term, so the capital amounts remains outstanding. However, due to the variety of Lifetime Mortgage products available, there is the flexibility to pay some, all or none of the monthly interest which is proving to be increasingly attractive to homeowners over 55 years old.
GIFTING TO FAMILY & FRIENDS: As house prices have increased considerably in recent years, home buyers seeking to purchase their first property have often struggled to raise the deposit required. In an interesting paradox, the increase in house prices has provided for greater equity in the value of properties for parents and grandparents but an issue for the younger generation, who are often struggling to find their footing on the housing ladder.
This has led to some parents and grandparents becoming increasingly forward-thinking with regards to their inheritance plans, preferring to use their own property to raise the deposit to gift to their children or grandchildren. This not only supports their family member with their own house purchase, but also provides experiential enjoyment for the giftor.
This type of inter-generational wealth transfer has meant that Lifetime mortgages have increased in popularity with the average gift amount in 2021 being £56,917.
INHERITANCE TAX PLANNING: There are potential inheritance tax advantages of gifting property wealth to a younger family member which appeal to a considerable number of people. If an estate falls into a category where Inheritance Tax may be due on the death of the property owner(s)then the creation of a debt against the estate may reduce the value of the estate below the Inheritance Tax threshold. This is a specialist area and Inheritance Tax advice from an appropriately qualified advisor should be sought before making any decisions.
DEBT CONSOLIDATION: The use of funds from equity release to discharge unsecured personal debt (such as loans and credit cards) is another use of equity release. It is important that careful consideration is given to not only the interest charges but also the legality that the unsecured debt will become a secured debt against the property.
In addition, the cost of the debt could be considerably higher over a specified period, as it is likely to outstanding for a lot longer and the interest (if not repaid) will ‘compound’. Compound interest means interest on top of interest and can lead to a smaller debt accelerating at a more advanced rate than an unsecured debt.
RENOVATIONS: The most popular reason for releasing funds in 2021 to date, has been for home and garden renovations with many over 55’s decided to invest money in home improvements or modifications to increase their own enjoyment of their properties. This has been particularly important during the Covid-19 “lock-downs” with people spending substantially more time within the confines of their homes and gardens.
NEW CARS/HOLIDAYS: The final category is for larger purchases such as new cars and holidays. Traditionally this makes up around 8% of the Equity Release market but in the past year this has been impacted dramatically largely due to restrictions on foreign travel.
As you can see, the uses for Equity Release funds range from traditional mortgage repayment, debt consolidation, inheritance tax planning and gifting to family. All of which are allowable and demonstrate the varied nature provided by equity release.

(1) Key Partnerships Equity Release Market Report 2021

Check out our Alternatives to Equity Release page to help you decide which is the best option for you.

Call The Equity Release Lady on 01752 749656 or CONTACT US to discover whether equity release mortgages are the right option for you.

We are authorised and regulated by the Financial Conduct Authority so you can always trust us to give you honest and impartial advice.

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The Equity Release Lady
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The Equity Release Lady (Company number 13354566) is a Trading Name of Ocean Mortgages Ltd. Ocean Mortgages Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register under reference 841683. Only if you choose to proceed and your case completes will Ocean Mortgages Ltd charge a fee. Our adviser will talk you through this and the setting up costs before you make any decision to proceed. A lifetime mortgage may affect the value of your estate and your entitlement to means-tested state benefits.

A summary of our internal procedures for the reasonable and prompt handling of complaints is available on request and if you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service at financial-ombudsman.org.uk or by contacting them on 0800 0234 567.

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