Equity release provides a cash-lump sum or regular drawdowns by freeing up the money tied up in your home. But can you access it if you do not work?
You can get equity release if you do not have a job. Equity release is not affordability assessed, meaning the amount you can release is not based on your income and expenditure. Instead, the amount you can release is largely determined by the age of the youngest homeowner and your property's value.
Although you do not need a job to get equity release, knowing how it is calculated and why income could impact your recommended route is essential.
Do you need an income for equity release?
You do not need an income for equity release. Unlike traditional mortgages, equity release does not require monthly repayments. Instead, the loan and interest accrued are typically repaid when the property is sold, usually upon the last homeowner's death or entry into long-term care.
This can be great for those in later life when you may have stopped working, or an upcoming retirement is just around the corner.
Although your income does not impact your eligibility for equity release, your advisor will still request your monthly income and outgoings. I often get asked why this is the case, so let's take a look.
The primary reason is to ensure you end up with the correct type of equity release plan and that the amounts meet your financial objectives now and in the future. However, it also allows your advisor to explore other alternatives.
For example, if you have a surplus income, other financial products could be more suitable, such as:
- Residential mortgages
- Retirement interest-only mortgages (RIOs)
- Unsecured borrowing - e.g. bank loans
It is worth noting that although not mandatory, all lifetime mortgages allow you to make payments towards the plan.
Is equity release based on your income?
Equity release is not based on your income, as it is not affordability assessed. This means your income and outgoings are not dictating factors for your eligibility, release amount, or interest rate.
Instead, they are largely based on two other factors.
- Your property value
- The youngest homeowner's age (minimum 55)
The amount you can release is based on a percentage of your property value. We refer to this as Loan to Value (LTV).
This can be very helpful for those without a job as it can be difficult to find other ways of raising funds when almost all financial products are based on income.
The LTV you can achieve is primarily based on the youngest homeowner's age. Typically, the older the homeowner is, the higher the LTV offered, meaning more money is available to release.
Further to this, all equity release products have different LTVs. This is how lenders price their interest rates. You will typically find that the higher the LTV, the higher the interest rate.
You can use our calculator to get a full breakdown of the loan amounts and interest rates achievable for you.
There are also other smaller factors that affect the amount and interest rates achievable. These include:
- Your property type - You can typically release more money on houses and bungalows rather than flats.
- Your country - England, Wales and Scotland have access to all equity release products, with Northern Ireland being restricted to a few lenders.
- Your postcode - Some lenders use your postcode to determine your eligibility and release amounts.
- Medical history - Some types of plan offer medical enhancements. These can provide larger releases and lower interest rates if you have had or currently have life-shortening illnesses.
What to consider when taking an equity release if you do not work
You need to consider several things when taking an equity release while out of work. This includes the impact equity release can have on means-tested benefits, the type of plan you should have, and whether the release amounts meet your financial goals now and in the future.
Let's break this down into more detail.
A means-tested benefit is any benefit you are entitled to based on having a low income and modest savings.
- Council Tax Reduction
- Universal Credit
- Child Tax Credit
- Housing Benefit
- Income Support
- Income-based Jobseeker's Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Working Tax Credit
- Pension Credit
Important: If you receive any of the above benefits, taking equity release could impact your ability to claim them.
The lump sum of cash paid to you when you take equity release is classed as a loan rather than income, so you must not declare it as income.
Furthermore, as long as the funds are earmarked for a specific purpose, they will likely not be classed as savings.
So why can benefits be impacted?
Suppose the money is held within your bank account for an extended period. In that case, it can be considered savings.
You could lose your entitlement if you have savings above certain thresholds (depending on the benefit you receive). This is where the type of plan you are recommended is essential, as a drawdown equity release can be very helpful in scenarios such as this.
Drawdown equity release
A drawdown plan allows you to take a lump sum of tax-free cash and place a pre-agreed amount into a reserve facility.
You are only charged interest on the amount you take, not what is held within the reserve facility until you withdraw it.
Typically, you can withdraw in minimum amounts of £500 or £2,000, depending on the plan.
In almost all scenarios, the amount held within the reserve is not classed as savings.
For a complete guide on how equity release can impact your benefits, click here.
It is also important to consider drawdown plans to support you financially throughout later life.
You can use drawdown plans to supplement your income until state retirement age and after.
Your equity release advisor will gather all the necessary information they require during your "Fact Find" meeting.
This allows them to recommend the most suitable product, ensuring you have established a roadmap to be financially stable for the rest of your life.
What are the benefits of taking an equity release if you do not have a job?
Some benefits of taking equity release while you do not have a job include:
- Supplement your income
- Clearing your mortgage early
- Access funds when you cannot get a mortgage/unsecured loan
Let's look at these in greater detail.
Supplement your income
Drawdown plans can supplement your income while you do not work.
This can be the extra help you need until you find work, come to retirement age, or even support you throughout retirement when household income often drops.
Clearing your mortgage early
People often think, "How can I get a higher income?" but forget to think about their outgoings.
For most people during their lives, the largest outgoing is mortgage payments.
You can use equity release to provide a lump sum to clear your mortgage. Unlike the mortgage, you will not need to make any monthly payments towards the equity release plan - unless you want to.
Instead, typically the interest rolls up over time, and you repay the lender when the last borrower passes away or moves into long-term care.
Access funds when you cannot get a mortgage / unsecured loan
Unlike equity release, standard mortgages and unsecured loans are affordability assessed, meaning your eligibility is based on your income and liabilities.
When you do not have a job, it can be challenging to meet these assessments.
This is one of the greatest benefits of equity release, as the lender largely bases their offer on your age and property value.
What are the risks of taking an equity release if you do not have a job?
The most significant risk of taking an equity release if you do not have a job is whether your benefits will be impacted. However, it is also essential to consider whether the funds will be enough to support you.
During the Fact Find meeting, your equity release advisor will ask many questions, including details on your income and outgoings and what is expected throughout your retirement.
When you do not have a job, the advisor will want to understand whether you can work and are looking for a job or will not be working again.
If you are looking for a job, the funds will need to last long enough until you become employed. Whereas if you are not working in the future, the funds will need to support you until retirement age and possibly beyond.
This is where drawdown plans can be helpful, as the lender does not charge you interest on the amount held within the reserve until you need to take it.
Should I get equity release or a job?
If you can work, getting a job will be more cost-effective for your estate, as you are not being charged interest on a loan.
However, if you cannot work or want to retire early, equity release can be a great financial tool.
It is vital to consider the long-term impacts equity release can have on your estate, such as the amount that will be passed to your beneficiaries as inheritance.
Most plans will last for several years, so the interest can roll up significantly. All equity release illustrations will show you how long the lender expects the plan to last and the interest added over time, assuming you do not make any payments.
Important: Although the plan has an estimated term, it will run for as long as needed. For most people, this is until the last borrower has passed away or moved into long-term care.
Your equity release advisor will discuss this in detail to ensure you fully appreciate the impact equity release can have.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor tax advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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