Equity release could improve your home’s value, says our financial expert.
According to the Equity Release Council (ERC), homeowners released a total of £6.2 billion from their properties last year – a staggering 29pc increase on the previous 12 months. These latest figures also confirm that the equity release market has doubled in five years.
While research suggests that a large proportion of people who release the wealth stored in their homes use it to enjoy retirement, an equally sizeable number use the tax-free cash to invest in home improvements. Surveys consistently confirm that more than one third of UK homeowners cite the opportunity to upgrade their homes as the prime motivation for releasing equity.
By reinvesting tax-free funds back into their homes, the cost of releasing equity could eventually be offset by the increased value of the property.
The Office for National Statistics found that homeowners spend almost £30 billion a year on home improvements, the equivalent of £57 million a week. So, how do we determine what to spend our money on?
Adding extra space to your home in the form of an extension is almost guaranteed to enhance its value. Most single-storey extensions house a kitchen, dining area or simply additional space to relax. Such extensions not only boost value, they’re also extremely popular because they do not normally require planning permission. A double extension which adds an extra bedroom can enhance a home’s value by more than 10pc.
Increasing square footage will almost certainly provide an immediate uplift in value, a financial benefit which is compounded over the years. Little wonder why so many people opt to release a proportion of the wealth wrapped up in their homes and utilise the tax-free proceeds to transform their existing property into a dream home.
Of course, homeowners are free to do whatever they want with their money – be it buying a new car, investing in a holiday home or helping a family member get a foot on the property ladder.
Equity release involves a form of borrowing, usually in the form of a lifetime mortgage. Although, unlike the mortgage for which older homeowners probably saved frantically back in the day, there is no contractual obligation to repay a penny: the outstanding lifetime mortgage is settled either when you die or move to full-time residential care and the property is sold.
To explore how much equity they could withdraw as tax-free cash, readers may wish to browse the Equity Release Supermarket website, home to the unique smartER platform, capable of providing a comprehensive range of real-time, equity release-related information.
Acknowledging that demand for equity release has soared over the past few years, Equity Release Supermarket chief executive Mark Gregory recognises that this specialist sector can continue to help people improve their lives.
“The market may have doubled in size since 2017, but statistics suggest that only a tiny percentage of people eligible to do so have released equity from their homes in order to enjoy a better quality of retirement," he says. "This is despite the fact that the over-55s are believed to be sitting on more than £1 trillion in housing wealth."
It’s worth noting that a lifetime mortgage may reduce the ultimate value of your estate and could affect your entitlement to means-tested state benefits. However, the combination of tax-free cash, the absence of contractual mortgage repayments and guaranteed home ownership for life means that equity release could prove the answer to those wishing to join the thousands of folks who have released equity from their homes to improve and add value to them.
Furthermore, reinvesting some of your existing property wealth back into your home could not only enhance its value, it will almost certainly make it a nicer place to live.
For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.
This column is for general information only and cannot be relied on as financial advice for individuals. Consult your professional adviser.
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