How to use equity release for home upgrades

Can you release equity from your home for home improvements?

Yes – with equity release, the money is yours to spend on almost whatever you choose, and that includes home improvements. So, if you're keen to install that new kitchen, put in triple glazing to make your home more energy efficient, or create extra room for visitors, equity release could provide the funds.

Saga customers between 1st January and 31st December 2023 were asked what they intended to use equity release for, 64% of them said they planned to use the money to fund home improvements, making it the most common reason people choose to release equity with us.

You will need to meet the minimum eligibility criteria of an equity release product as owning a home doesn't guarantee that you can release equity. Most providers specify that the youngest homeowner must be at least 55, with a UK property that is valued at over £70,000.

How do you release equity to fund home renovations?

If you want to take advantage of equity release for home improvements, you could borrow against some of the equity that's available in your property and turn it into tax-free cash.

How much equity you can release depends on your age, health, and the value of your home. Your circumstances and finances will be assessed and your suitability for equity release will be reviewed. Health and lifestyle can impact the amount you can release - if you have certain medical conditions, you could release more or secure a lower interest rate.

If you release equity as part of a couple, the repayment is not due until the last remaining person living in the home dies or goes into permanent long-term care, so both you and your partner can stay in your newly-renovated home for the rest of your lives. For sole homeowners, when you die, your executor will manage any equity left in your estate. The loan is usually paid off using the proceeds of the sale of the property. Anything left over goes to beneficiaries. If you move into long-term care, any remaining equity still belongs to you, the homeowner.

What methods can you use to release equity for home improvements?

There are two main types of equity release to fund house renovations and it will depend on your situation as to which one will work better.

Lifetime mortgage

A lifetime mortgage is a loan secured against your home that you can choose to take in one lump sum, or in smaller amounts as and when you need them from a pre-agreed limit under a drawdown lifetime mortgage. The lifetime mortgage doesn't need to be repaid until you die or go into long-term care.

• You can take out a lifetime mortgage even if you haven't paid off all your current mortgage, but you must clear your existing mortgage before (or at the time of) taking out equity release.
• It accrues compounded interest so you pay interest on the interest, unless you choose to make full monthly repayments.
• It's usually repaid using the proceeds from the sale of your property when you (or your partner if you have a joint agreement) die or go into permanent long-term care. Your beneficiaries may have other ways of repayment which they can choose to use.
• It will reduce the value of the estate you leave behind to your loved ones.

Saga have chosen HUB Financial Solutions Limited to provide Saga Equity Release – a no-obligation, no-pressure advice service dedicated to finding out if equity release is right for you. Find out more about Saga Equity Release.

Home reversion plan (not available with Saga Equity Release)

If you choose a home reversion plan, you sell all or part of your home to a home reversion provider and get a cash lump sum or a regular income in return.

• You can stay in your home usually rent free for the rest of your life.
• The property is sold when you die or go into permanent long-term care.
• The value of your estate will be reduced by the amount of the property's value that's paid to the provider.

What are the pros and cons of releasing equity for home improvements?

Using equity release for home improvements is a big decision, and before you go ahead you should consider the pros and cons.

The advantages of equity release for home improvements:

• You get a tax-free lump sum to pay for your renovations, and you also get to stay in your home until you die or move into permanent long-term care.
• You may continue to benefit from any rise in your home's value (unless you've sold 100% of it to a home reversion provider).
• You may still be able to move home with most products and transfer the product to a new home as long as it meets the provider's lending criteria.
• For most products you don't need to make regular repayments unless you choose to.

The disadvantages of equity release for home improvements:

• With home reversion plans, you'll get less than the full market value of your home than if you sold it on the open market.
• The value of your estate reduces and you will have less capital to leave in your will.
• Getting a cash sum may reduce your entitlement to means-tested benefits.
• If you want to pay off your agreement early, you will likely face early repayment charges.
• If the value of your home falls, so will your remaining equity. Most providers now guarantee that you won't be put into a position of negative equity.

The Equity Release Council was set up to protect people from losing out when choosing equity release. Providers who are members of the Equity Release Council must ensure you can still live in your home until you die or move into long-term permanent care. They also commit to you never owing them more than the total sale price of your home, even if its value drops when the property is sold following death or entering long-term care.

Saga Equity Release and HUB Financial Solutions Limited are members of the Equity Release Council. This industry body ensures that all equity release products are safe and suitable for customers.

What other ways can you get money for home improvements?

If you decide not to use equity release, there are other ways to fund home improvements, which might suit your current plans better:

• Do you have other investments or savings that could provide lump sum funding for house renovation?
• Could family and friends offer some financial support?
• Could you take out a personal bank loan? (Interest rates might be lower but the full amount will need repaying on a regular basis starting straight away)
• Paying for smaller renovations on a credit card might be an option, although this depends on the amount of credit available and your ability to repay the amount in full.
• Could you generate income by renting out a room in your home? (You will need to consider tax paid on rental income and changes to benefits or council tax.).
• If you need to update your home to make it easier to live independently, you may be eligible for financial help from your local council.

If you want to find out more about whether you can use equity release to fund your home improvements, book a no-obligation appointment or request a callback from the Saga Equity Release team.

The Saga Equity Release team will help you find out whether equity release could help you. Saga Equity Release is provided by HUB Financial Solutions Ltd and is for those aged 55 or over with a UK home worth at least £70,000. Find out more with no-obligation advice from a specialist equity release adviser. If after receiving advice you decide to take out a Saga Lifetime Mortgage you'll need to pay an advice fee of £799.

As part of the service, the adviser will consider alternatives to equity release based on your personal circumstances. Please be aware that equity release will reduce the value of your estate and may affect your entitlement to means-tested state benefits.