Equity release can fund extensions, house renovations and other home updates
When you've been in your home for some time there's always improvements to consider that will make life more comfortable and enjoyable. You might want to put in a home office to make homeworking easier, set up a loft conversion for when the grandchildren come to visit, or make mobility adjustments so that you can stay independent for longer. If you aren't sure how to make your plans a reality, one option is to use equity release for home improvements.
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 can provide the funds.
When we surveyed Saga customers between 1st October and 18 November 2021 about what they intended to use equity release for, 56% 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 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 are older or have certain medical conditions, you could release more or achieve 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 the 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, the equity still belongs to you, the homeowner.
What methods can you use to release equity for home improvement?
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.
A lifetime mortgage is a loan secured on your home that you can choose to take in one lump sum or in smaller amounts under a drawdown lifetime time mortgage and doesn't need to be repaid until you die or go into long-term care.
- It acts as a loan secured against your home that accrues interest each month.
- You can take out a lifetime mortgage even if you haven't paid off all your current mortgage, but you must clear this mortgage either before you take out equity release or alongside it.
- It accrues compounded interest so you pay interest on the interest, unless you choose to make 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 family 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 FREE advice, no-obligation, no-pressure 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 have 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 rent free for the rest of your life.
- The property is sold when you die or go into permanent long-term care.
- Your estate value 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 extensions or 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.
- 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 in the UK, 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.
At Saga we partner with HUB Financial Solutions Limited to provide Saga Equity Release – a FREE advice, no-obligation, no-pressure service dedicated to finding out if equity release is the right choice for you.
More on equity release
For more information and to help you understand equity release a little better visit some of our other articles and pages.