OPINION: Using equity release for home improvements

A modern home with an extension being built

Financial expert Peter Sharkey says there are options for those wishing to get the most out of their home without draining their savings - Credit: Getty Images/iStockphoto

An estate agent friend I’ve known for many years told me recently: “Homes have significant value beyond just the monetary. It’s an intangible value which rises in direct proportion to the period of time a family occupies a property.”

In a sector over-burdened with opinions of questionable accuracy, the succinct assessment of a man who has worked at the property market’s coal-face for more than 30 years is worth listening to.

Of course there’s more to a home than simply bricks and mortar. Memories associated with the places in which we live are invaluable; our homes are where we experience emotions of every description, from tears and sadness to smiles and laughter – and yes, love. This explains why so many people who have occupied their homes for a long time are reluctant to leave them. Moving out can almost feel like a betrayal of memories accumulated over decades.

It will come as no surprise, then, to learn that each year increasing numbers of homeowners prefer to upgrade and improve their current home rather than move. There are immediate financial benefits: stamp duty on a new property is avoided, while estate agency, legal and removal fees no longer have to be paid. Perhaps most importantly, the struggle to pinpoint the perfect alternative to the current home, one which remains accessible to friends and family, is also avoided. For large numbers of people, therefore, transforming their existing home offers an attractive alternative: the opportunity to create bespoke living space.

As circumstances change, homeowners may wish to make changes to their property to enhance both its monetary value, the owners’ quality of life and their enjoyment while living in the place they’re likely to have called home for many years.

However, with inflation forcing up the cost of renovations, it is important to consider refurbishment expenses, perhaps by obtaining a number of quotes from reliable firms for the work required before taking the plunge. But how best to pay for a new kitchen, a bathroom makeover, a light-filled extension, or a complete overhaul of the garden?  

Fortunately, there are several options for those wishing to get the most out of their home without draining their savings or selling a percentage of existing investments, a move which could impact upon longer-term retirement income.

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One option, available to homeowners aged 55 and above, is equity release. This is a straight forward process which enables them to access a proportion of their property wealth by utilising a loan secured against their home’s value.

The UK’s most popular form of equity release is known as a lifetime mortgage. This enables homeowners to release a tax-free cash lump sum from their property which they can then ‘re-invest’ in their home in the form of, say, a light and airy extension, a new kitchen or a bathroom upgrade. In fact, the lump sum can be put to any use, although people who use the funds to improve their property may also increase its value, which could offset the effect releasing equity could have on the value of their estate.  

Over the past six years in particular, equity release plans have evolved dramatically and now include a wide range of features which allow homeowners to balance their current wants with their future needs.

For instance, older homeowners can take out a plan known as a drawdown lifetime mortgage which allows them to have a reserve fund of equity, together with their initial lump sum, which can be drawn down whenever it is required. Two of the main benefits of such an arrangement are that interest is only charged on funds that have been drawn down and it is considered an ideal means of funding home improvements because the reserve fund need only be accessed as and when it is required.

Of course, opting to release equity from the home is a big decision. It could reduce the value of a homeowners’ estate and have an impact upon their entitlement to means-tested state benefits. The importance of obtaining a personal  recommendation from a qualified equity release adviser cannot be overstated.

Researching equity release plans has become easier since the launch of smartER, a revolutionary new search tool that allows you to browse the whole market to help you find the most suitable plan. This simple search engine can be filtered to highlight the most important features as well as the lowest rates available, putting you in control. Once you have found a plan that suits your requirements, the next big decision concerns your home improvements!

Moving home is no longer a necessity as equity release provides a flexible alternative. And for those who then choose to improve their property, the likelihood is they’re also adding further value to a memory-filled, well-loved home.

To find out how much you could release simply visit: www.equityreleasesupermarket.com/smarter

For more financial advice, check out Peter Sharkey’s regular blog, The Week In Numbers.