Q My partner and I are starting to plan for retirement and we are not sure what options we might have for our home when it comes to the time. The property is currently worth £330,000 and, all being well, will be owned outright by the time we retire.
We have no dependants and won’t have anyone to pass any inheritance on to, and so we would like to release as much cash from our home to use ourselves in retirement while remaining in the property.
We’d like to know what options we have to release equity from the property. We’re aware that an equity release mortgage is one option but the values that you seem to be able to release seem very small compared with the overall value of the property. There must be other options out there but we aren’t sure where to start.
Our retirement is some way off yet but understanding what options are available and how much equity might be released will affect what other actions we take now in preparation for the future.
GE
A As you want to remain in your home, the cheapest way to release equity – which is to downsize – is not an option for you. What is an option, as you are aware, is an equity release mortgage – also known as a lifetime mortgage – which you can take out once the younger of you reaches the age of 55. As you are not bothered about leaving money to anyone, the fact that the interest charged on the mortgage – which is typically higher than on a conventional mortgage – is rolled up and added to the amount you borrowed is not going to be a problem. However, what might be a problem for you is the fact that the most you can typically borrow is 60% of the value of your home.
Once you get to the age of 65, the equity release alternative to a lifetime mortgage is a home reversion plan. This is where you sell between 25% and 100% of your home to a home-reversion-plan provider for a cash lump sum, regular income or both while carrying on living there. The major downside to this sort of scheme is that you can expect to be offered between 20% and 60% of your property’s true value. Because you will be getting less than market value for any share you sell a provider, it’s a less attractive option than a lifetime mortgage. Whichever equity release route you go down, the cash you get is tax free but having a large lump sum in the bank will affect any state benefits.
