Is equity release the best way to fund your retirement?
For many of us, our home is our biggest asset—especially once it’s mortgage-free. If you own a property and want to use the money tied up in it to fund your retirement, then equity release via a loan on your home is an option.
However, be sure to research all of your options. This guide will help you understand what equity release means for those aged 55 and over, alongside available alternatives, to give you a better idea of what may be right for you.
Note: This guide summarises some of the pros and cons of each option but these are complicated choices. It does not constitute financial advice. You should always seek professional advice from an Independent Financial Adviser before making any decisions.
What is equity release for seniors?
Equity release is a financial arrangement that allows a property owner to free up equity (cash) from their home to spend elsewhere. For seniors, equity release may be used to boost retirement savings or help with other expenses.
Equity release in retirement is often done in one of two main ways: lifetime mortgage or home reversion plan. Both allow you to access money from your home, without having to move.
- A lifetime mortgage
Similar to a traditional mortgage, you’ll receive a loan secured against your home. You pay interest every month and usually don’t have to repay the loan until you pass away or move into a care home.
- Home reversion plan
This is a type of equity release for over 60s and allows you to sell part or all of your home while still living in it. Again, you can usually stay in your home until you pass away or move into residential care.
What are the benefits of equity release for seniors?
Equity release for seniors can offer an array of benefits for those aged 55 or over. Some of the most obvious benefits include::
● Increased lifestyle or care funds or to provide a rainy day fund should you need it
● Continued living in your home and the opportunity to move in the future (if your equity release provider agrees)
● Ongoing homeownership with a lifetime mortgage, letting you benefit from potential property price rises
What are the drawbacks of equity release for seniors?
While equity release may be great for some, it might not be right for others. Some drawbacks of equity release for seniors include:
● Interest on your loan can add up quickly
● You no longer own your home with a home reversion plan
● Benefits may be affected now or in the future if they’re means-tested
● Continued living in an unsuitable home which may not be age-appropriate or provide enough support
Three alternatives to equity release for over 55s
McCarthy Stone offers some excellent alternatives to equity release in retirement, especially if you’re in the familiar situation of owning a home that is now too big or becoming unsuitable for your needs.
To help you understand your options, learn more about three alternatives to conventional equity release for over 55s.
1. Downsizing to release equity for retirement
‘Downsizing’ refers to moving into a smaller, more manageable property when you no longer want or need to look after a larger home. This tends to be a popular choice for those aged 55 and over - particularly once children have moved out of the family home.
Benefits of releasing equity through downsizing
● More money to spend on your retirement by swapping a larger, more expensive home for a smaller, cheaper one
● Reduced outgoings with cheaper energy bills and maintenance fees to lower costs of living in a smaller home
● Opportunity to relocate and move closer to family, friends and amenities
● Future-proofed lifestyle with a home that’s safe, secure and cleverly designed to support older people
● Part of a friendly community where you can enjoy on-site facilities and help on hand, should you need it
Things to consider if releasing equity through downsizing
● The emotional wrench of leaving a home you love and may have lived in for decades
● Reduced living space - which may require you to declutter before a move
● The stress of moving - although we can help to make this simpler with our moving services
2. Purchasing a retirement property through Older People’s Shared Ownership
Backed by Homes England, Older People’s Shared Ownership (OPSO) allows you to reduce the costs of buying a McCarthy Stone retirement property. For example, if you purchase 75% of a home then there’s nothing to pay for the other 25%*. Or if you purchase a smaller share, you’ll pay a low monthly rent on the remaining share. To qualify you need to meet the age criteria for the retirement development you want to buy in, own only one property and have a household income of less than £80,000 (£90,000 in London).
Benefits of Older People’s Shared Ownership
● A cost-effective way to buy a retirement property
● Opportunity to live the McCarthy Stone lifestyle and access all benefits, without paying full price
● Rent-free options when you purchase 75% of the property
● Or purchase a smaller share and pay a low monthly rent on the remaining share
Things to consider with Older People’s Shared Ownership
● You must be eligible and meet the criteria outlined by Homes England
● You won’t own 100% of your home as it’s a Shared Ownership property
● Only available on selected properties - find a Shared Ownership property near you
3. Renting a retirement property to release equity
Renting in retirement gives you a quick, easy and stress-free way to enjoy life in our friendly communities. It can free up money too. While some people rent out their existing home to pay for their rental retirement home, you may prefer to sell your home and use the proceeds to fund your retirement.
Benefits of a retirement rental to release equity
● Potential to use the equity from selling an existing property to fund your retirement
● Maintenance issues are accounted for and swiftly addressed, at no extra charge
● Shorter-term commitment options should you want to move into or out of a rental property quickly
● Easy budgeting with a single monthly payment that includes service change and maintenance
● Assured Tenancy Agreement to stay as long as you like (subject to the minimum term)
Things to consider with using a retirement rental to release equity
● You won’t own your home as you’ll rent from a landlord
● Rental payments can increase over time
● Only available on selected properties—discover retirement rentals near you
Find an affordable retirement home with McCarthy Stone
We’re here to help you find a retirement home that is right for you and your circumstances. From guiding you through the process to our free entitlements advice that could help you claim money you didn’t know you were owed, we’re here for your retirement journey. Start your search and discover a beautiful retirement home near you.
Got a question? We’d love to hear from you. Send us a message online or call our friendly team on 0800 201 4811 today.
* Qualifying criteria apply. Other shares are available with rent. Shared Ownership is available on selected apartments at participating developments only. Not available with Part Exchange.
