EQUITY RELEASE GUIDE
Some homeowners consider using equity release to pay for improvements or adaptations to their home. A lifetime mortgage may potentially provide money for this purpose, but the costs and longer-term implications should be understood.
The amount available and whether equity release may be appropriate will depend on your circumstances, property and the options available to you.
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Consider the project as well as the borrowing
If you are considering borrowing against your home to fund improvements, think about the likely cost of the work, why you want to carry it out and whether other ways of paying for it may be available.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
Money released through a lifetime mortgage can potentially be used for home improvements or adaptations. The type and scale of the work will depend on what you want to achieve and how much you choose to release.
Unlike borrowing specifically linked to a building project, the money released through a lifetime mortgage is generally provided to you to use for your chosen purpose, subject to the terms of the arrangement.
Lifetime mortgage
Borrowing is secured against your home.
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Money released
The amount available will depend on your circumstances and the product.
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Home improvements
The money can potentially be used towards the work you are planning.
The cost of the project and the amount you borrow are separate decisions
Before deciding how much to release, consider the likely cost of the work and whether you need to borrow the full amount at once. Borrowing more than you need could increase the amount on which interest is charged.
How much may be available through equity release can depend on factors including your age, property value and the product criteria.
Home improvements can range from essential repairs and adaptations to larger projects intended to change how a property is used. The cost, urgency and purpose of the work can all be relevant when considering how to pay for it.
Examples of projects homeowners might consider include:
Repairs and maintenance
Work such as roofing, windows, plumbing, electrics or other repairs needed to maintain the property.
Adapting your home
Changes intended to make the property easier to use in later life, such as accessibility or mobility adaptations.
Kitchens and bathrooms
Replacing or altering kitchens, bathrooms and other parts of the home’s interior.
Extensions and conversions
Projects that create or change living space, such as an extension, loft conversion or other structural alterations.
Energy efficiency
Measures intended to improve the property’s energy efficiency, such as insulation, heating upgrades or other improvements.
General refurbishment
Decorating, flooring and other work intended to update or refurbish the property.
Consider whether the work is essential, desirable or could be phased
The reason for carrying out the work can help you think about how urgently the money is needed and whether the full project needs to be funded at once. If work can be completed in stages, the timing of any borrowing may also be worth considering.
Whatever the project, consider the cost of the borrowing separately from the cost and potential benefits of the improvements themselves.
The amount you might need will depend on the work you are planning and how you intend to pay for it. Before deciding how much to borrow, it can be useful to develop a realistic project budget.
Building and renovation costs can also change as a project progresses, so the amount initially estimated may not necessarily be the final cost.
EXPECTED PROJECT COST
Planned work
Consider quotations or estimates for the work you intend to carry out.
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POTENTIAL EXTRA COSTS
Changes and unexpected costs
Projects can change or encounter additional costs after work has started.
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OVERALL FUNDING REQUIREMENT
How much funding may be needed
Consider the overall project before deciding how much you may need to borrow.
Do you need all the money at once?
If the work will be paid for in stages, the timing of the borrowing may also be relevant. Some lifetime mortgages offer a drawdown facility, allowing an initial amount to be taken with further amounts potentially available later, subject to the terms of the arrangement.
ONE INITIAL AMOUNT (Lump sum)
The agreed borrowing is taken as a single amount at the outset.
Interest would generally apply to the amount borrowed from the time it is released.
MONEY TAKEN IN STAGES (Drawdown)
An initial amount is taken, with further money potentially available from an agreed facility later.
Interest would generally apply only to money once it has actually been released.
Borrowing money before you need it can affect the interest charged
If money is released earlier than it is needed, interest may begin to apply before the money is actually spent. Where a project will be funded over time, this is one factor that may be worth discussing with an adviser.
The amount you spend on home improvements is only one part of the overall financial picture. If the work is funded through a lifetime mortgage, the cost of the borrowing also needs to be considered.
If interest is added rather than paid, the lifetime mortgage balance can increase over time and reduce the equity remaining in your home.
Interest can build up
If interest is added to the lifetime mortgage rather than paid, the outstanding balance can increase over time.
The project cost may change
The eventual cost of building or renovation work may differ from the amount originally estimated or quoted.
Less equity may remain
Borrowing against your home and allowing interest to build up can reduce the amount of property equity remaining in the future.
Your estate may be affected
Using equity from your home and the potential growth of the loan balance can reduce the value of the estate ultimately available to beneficiaries.
Separate the improvement from the borrowing
THE HOME IMPROVEMENT
What are you spending?
Consider the project’s expected cost, purpose and whether the work needs to be completed now or could be carried out in stages.
THE LIFETIME MORTGAGE
What could the borrowing cost?
Consider the interest, any other costs, how the loan balance could change over time and the effect on the equity remaining in your home.
An improvement to your home may have practical or personal benefits, but those benefits should be considered separately from the financial cost of borrowing to pay for it.
Equity release is not the only potential way to pay for work on your home. Depending on the project and your circumstances, other sources of funding or changes to the scope and timing of the work may be worth considering.
Using savings or investments
Existing savings or investments might potentially be used to fund some or all of the work, although the wider financial and tax implications of accessing them should be considered.
Completing the work in stages
Some projects may be capable of being divided into phases, potentially allowing the cost to be spread over a longer period.
Other borrowing options
Depending on your circumstances, another mortgage or form of borrowing may potentially be available, subject to eligibility, affordability and the terms offered.
Grants or financial support
For some types of work or adaptations, financial assistance may be available from government, local authorities or other schemes, depending on eligibility and where you live.
Reconsidering the scope of the project
If the proposed work is flexible, another possibility is to reconsider its scale, specification or timing. Distinguishing essential work from desirable improvements may help determine how much funding is actually required.
Questions to compare
The options available will depend on your circumstances and the type of work you are considering.
COST
How much will it cost?
PAYMENTS
Are regular payments required?
FLEXIBILITY
How flexible is it?
OVER TIME
What is the long-term cost?
Before deciding how to fund improvements to your home, it can be useful to consider the project itself, the amount you may need and how the borrowing could affect your finances over time.
What work are you planning and why?
How much is the project likely to cost?
Could the cost change once work begins?
Do you need all of the money at once?
How much could potentially be available through equity release?
Could you fund some or all of the work another way?
How could the borrowing affect the equity remaining in your home?
Could your plans or circumstances change in the future?
Think beyond the building work itself
The project may be completed relatively quickly, while borrowing through a lifetime mortgage could remain in place for many years. Consider both the immediate purpose of the money and the potential longer-term effect of the borrowing.
Continue exploring equity release
These guides can help you understand how lifetime mortgages work, how much may be available and the potential costs involved.
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Speak to an equity release adviser
Mortgage Website Limited can review your enquiry and, where appropriate, introduce you to a selected adviser who can discuss your circumstances and provide regulated advice.
Find an equity release adviser
No obligation to proceed.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
Common questions about using equity release to fund home improvements.
Can I use equity release for home improvements?
What types of home improvements can equity release be used for?
How much can I release for home improvements?
Do I have to take all the money at once?
What is the difference between a lump sum and drawdown?
Will home improvements increase the value of my property?
What happens to the interest on the lifetime mortgage?
Are there other ways to pay for home improvements?
Could financial support be available for home adaptations?
What should I consider before using equity release for home improvements?
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