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What is equity release used for?

Holly Thomas / 14 March 2016 ( 05 July 2018 )

Home improvements? Clearing debt? Helping family? What do people use the money from equity release for, and how could equity release help you?

Paint pots and paint brushes
Home improvements are typically the most popular way to spend the money released

Retired homeowners have seen their property wealth grow by nearly £13.7 billion in the past three months as house prices continue to climb, earning the average pensioner more than £1,000 a month, according to the latest analysis.

Pensioners who own their homes outright have earned an average of £3,106 tax-free each from their houses in the past three months, taking their property wealth to a new record high.

With these figures in mind, it’s no wonder they are turning to their properties as an extra source of income during retirement.

What is equity release and how does it work?

Unlocking value while remaining in your home

While many opt to downsize, it’s not always the answer if it means moving away from long-standing friends and communities or losing the ability to have children and grandchildren to visit.

The strong growth in the equity release market is testament to the fact people want to stay in their own homes.

Equity release schemes allow the over-55s to borrow against the value of their home, but the loan is only repaid when the house is sold and the owners move into care, or pass away.

Is equity release the right option for you?

These plans are a lifeline to many with debts or shortfalls in the income from their pension savings.

The cash that can be generated from property can easily outstrip the amount held in a private pension. Using the Saga Equity Release calculator, someone aged 70 with a property value of £200,000 could release up to £78,000.

But what are they using the money for and how can equity release help you?

How is the money released spent?

Home improvements

Home improvements are typically the most popular way to spend cash released. 

It might be to upgrade existing rooms – perhaps a new bathroom or kitchen you’ve always wanted or simply some general modernisation. Some people choose to add a conservatory. 

But others will use the money to adapt their homes to help with getting around more easily. You might want a ramp or handrails for the front door, a stair lift and a walk in bath.

Seven home improvements that add value to your home.

Clearing debts and mortgages

Paying off debt is another common theme. Gone are the days when mortgages and credit cards are cleared by the time you reach your fifties. Far from it. 

Paying off mortgage might be top of the list for those who took out interest only mortgages years ago. Interest-only mortgages allow deferred capital repayments. Borrowers simply repay the interest each month, and the balance is due when the mortgage finishes. Many will not have the money to pay off the loan or the income to justify another mortgage, so will need to raise cash to repay the balance.

Tips for securing a mortgage when you are over 50.

Giving the money to family

Helping family move up the housing ladder, funding a private education for grandchildren or simply treating everyone with a helping hand is important to some who would rather see their family enjoy what would otherwise be inheritance while they’re still around to see it. 

A survey by Saga revealed that one in five people who take out equity release use some of the money to give to family, with the average gift being £29,000.

Will you get taxed on the money you give to your children?

Splashing out

Going on a holiday of a lifetime will be among the things on a wishlist for some retired homeowners who have time on their hands at long last.

Boost income

Many people are using equity release to secure themselves a comfortable and enjoyable retirement, considering their home as part of their retirement portfolio. 

Read Paul Lewis' guide to boosting your pension.

Private pension savings are pretty inadequate, and with people living so much longer, often help is needed on a more regular basis to make ends meet. Living costs can be high and so drawing on the cash in your home can make life a little more comfortable by plugging a large or small gap in income needs.

Taking out a plan

Shopping around is essential because providers levy different interest rates. You must also get a handle on the charges involved. 

One way to reduce costs is by not taking all the mortgage in one go but drawing down on it as and when money is needed. By doing this, less interest rolls up.

It is also important for those considering releasing equity from their property to seek specialist advice and make sure they understand the impact this will have on their ability to leave further inheritance in the future.

Alex Edmans, head of retirement, Saga Personal Finance, says: “Inheritance can be an emotive issue therefore it is important for parents to discuss with their children, but they should not feel obliged to leave an inheritance. 

"For those who would like to leave something behind they should realistically consider how best to use the money they have to make sure they have enough to fulfil their retirement goals and have something left for later life care, as well as what to leave for their children.”


If you are not ready for an equity release plan but want to generate some extra cash, and your property is large enough, another option is to rent a room to a lodger. Under the government’s Rent a Room scheme, it is possible to earn up to £4,250 a year tax-free from letting a spare room in your home. Even better, from next month, this allowance will increase to £7,500.

You can also speak to your financial adviser about taking a lump sum from your private pension savings.

For more tips and useful information, browse our money articles.

Use our free Equity Release calculator.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.