You may be considering equity release and find yourself wondering what you can use equity release for? And if there are any restrictions on the use of equity release funds?
Equity release funds are tax-free and can be used for anything you wish (providing it is legal). The most popular uses of equity release funds are: repaying mortgages and unsecured debt, home improvements, supplementing income, purchasing properties, and helping family.
Let's explore the most common uses and discuss in greater detail, and discuss any potential restrictions on the funds released.
When considering the most popular uses of equity release, I thought it best to look directly at what our clients used their release funds for.
Below is a table showing the most common uses, and percentage of Money Release clients in 2020. You will note that the uses do not add up to 100%; this is because people often use their funds for more than one purpose.
|Home / Garden Improvements
|Clear Unsecured Debt
Source: Money Release clients, 2020.
But these are not the only uses for equity release. We have helped hundreds of other clients use equity release to pay for a wide array of products and services, including:
- Inheritance Tax Planning
- Pay for boat repairs
- Buy holiday homes
- Pay tax bills
- Paying solicitors fees
- Pay court fees
- Buying co-owner out of a property
- Lease extensions on lease-hold properties
- Paying for cosmetic surgery
- Paying for school/university fees
Click on the images below to read how equity release could help you.
Equity release plans are available from age 55, and there is no upper age limit. We have discussed the most common uses of funds, but does this differ by age?
Clients aged 55-70 typically use equity release to repay mortgages, pay for home improvements and supplement income. Clients aged 70-85 usually use equity release to supplement income and pay for home improvements and family gifts. Clients aged 85+ most commonly use equity release to help fund care.
Source: Money Release clients, 2020.
Due to the ongoing Covid-19 pandemic that we are currently facing, we have seen a difference in the planned use of equity release funds.
This isn't surprising considering how everyone's life has been affected in various different ways.
I called each of the equity release lenders to hear their views of the wider equity release market, and what they are expecting people to be using equity release for in 2021.
Equity release for early retirement
People nearing retirement age may be facing the prospect of losing their job, or their role being made redundant. This could affect anyone, from airline pilots to self-employed taxi drivers. But how could equity release help?
Equity release funds are tax-free and are not typically classed as income (as it is a loan which needs to be repaid, not an income source). You could therefore consider taking equity release to help fund early retirement.
The equity release funds could be used to reduce your outgoings, by clearing any mortgage, or unsecured debts which you have. Alternatively, you may wish to supplement your income with a lifetime mortgage, until you draw upon private pensions, or receive your state pension.
Equity release to help family (early inheritance)
Not only are we hearing from clients who are in financial difficulty, but also their family members who are too. This has led to an increase in the number of enquiries for those considering taking equity release to gift to their beneficiaries as an early inheritance.
A great benefit is that you are able to see your loved ones make the most fo the financial support now, rather than when you are not here.
Equity release to purchase a new home
You may wish to move to a new home which you can spend the rest of your life in, or move closer to family and friends. Equity release can help you to purchase a new home (you do not need to already own the home).
I have written a full guide on purchasing a home using equity release. The article also includes a helpful purchase calculator to show you how much you can afford to spend on your new home.
Equity release to repay an existing mortgage
Using equity release to help repay your mortgage can be a great way to help lower your monthly outgoings, and reduce any financial pressure you are under.
Whether you have an existing interest-only mortgage or repayment mortgage, equity release could repay your current loan.
Another benefit of equity release is that there are no affordability assessments; your property is the collateral for the loan. This can be a significant relief for those who have had their incomes hit.
Equity release to help fund holidays
A popular use of equity release has always been to help pay for holidays. But with the ongoing pandemic, you may be surprised to know it is still a popular choice.
For lots of clients, this could be a way to help pay for a large holiday once travel is permitted, or to pay for holidays in the UK. I even know of people using equity release to help purchase camper vans, so that they can have lots of UK based holidays (when allowed)!
Equity release to help fund care at home
The idea of going into a care home is one that lots of my clients don't like to consider. But with the extra impact that Covid-19 has had on the care sector, many are even more adamant that they are staying at home until they pass.
As a result, it should be of little surprise that many clients are looking at how they can make their home a comfortable place to live until they pass. This could be from adaptions to their existing home - fitting stairlifts or walk-in showers - or to pay for someone to help them with their daily routine at home.
Care can be costly, but as even with state-funded care, your home will be assessed for payment of fees, taking an equity release plan could help you stay in your home for longer.
You can use money received from equity release to spend on anything that you wish (providing that it is legal). There are no legal restrictions in place on the use of the loan.
However, different lenders and financial advisors may restrict some of the use of funds. Any restrictions in place are designed to protect the lender and the client.
For example, access to equity release may be restricted if you plan to use the funds for:
- Investment purposes - You will likely require independent investment advice should you wish to release equity to invest. This is because the amount that you earn from the investment is likely to be less than the interest accrued on your loan.
- Paying for care plans - If you wish to purchase a care plan, you will also require care advice. Your equity release advisor may also be qualified to provide care advice. If not, a suitably qualified care advisor will be required to work alongside your equity release advisor to receive the funds.
- Gifting - While gifting to your loved ones can be a great way to help them now, you may find yourself under pressure, or vulnerable when being asked to gift your money away. As such, your advisor, solicitor, and the equity release lender will need to ensure that you are fully aware of the consequences of gifting your money.
You have now seen the most common uses for equity release plans. But what would you use the funds for? Please cast your vote in our poll below.
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 legal 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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