How Do I Know If Equity Release Is Right For Me?
Updated: Aug 19, 2020
I Own My House - Can I Use the Equity In It To Fund My Retirement?
First and foremost it is important to establish that your property is always worth only what someone else is prepared to pay for it. Of course, we have had a market for buying and selling houses for over 100 years. However, it is only since the 1970s that home ownership came to outnumber rented properties.
In a buoyant housing market, there are many ways in which you can estimate what your house is worth and how saleable it is - with estate agents, website valuations, access to public records, and even chatting over the garden fence providing a good indication to varying degrees.
However, there can be many unforeseen factors that could affect saleability, including a not-exhaustive list of things such as the current state of repair, the internal upkeep and decor, gardens, position in relation to positive influencing factors like schools and public transport access, or less positive factors such as large industrial sites, backing on to train lines, or an apartment above a takeaway. The idea of owning equity in your property is therefore a flawed one, insomuch as all you actually own is bricks and mortar and everything else within your boundary line and the contents within.
Despite this, it can be said that there is value in your property. That value forms part of your overall estate, which on death would be assessed for Inheritance Tax*.
I Also Have Other Cash, Savings & Investment, & Physical Assets of Value
You may be fortunate enough to have other wealth, whether that be other property, cash savings, equity or fixed interest investments, valuable works of arts, classic cars, national savings products, or a whole world of other items of worth.
Many of these investments will be held as described, or they may be held in some form of a financial product, like an investment bond, pension fund, or as a share portfolio. Whatever you have that makes up your 'worldly goods' there are somethings worth distinguishing:
They all have a value. Some more easily definable than others and some less so - cash in the bank is obvious as your statement or online account will show the value. A classic car or work of art may be less easy to evaluate as the market is not always completely clear.
There are various tax implications* if you are to withdraw money from any of those assets. If you withdraw cash (setting aside any interest earned for this example) then it is tax-free, as is a cash ISA withdrawal. A pension withdrawal may have an element of tax-free cash payable with any income or lump sum drawn in addition taxed accordingly at either the individual's personal tax rate or in line with pension taxation laws at the time.
Some of your assets will be very liquid - cash in a standard personal bank account can be withdrawn immediately or used for purchases at point of sale through contactless or chip and pin payment systems. Larger sums can be withdrawn from your branch - sometimes with notice for very large sums. Not many of us deal in cash for large purchases though, so a debit card payment is more usual and again immediately transacted (or within a couple of working days dependant on your bank or building society). Some assets are less liquid depending on market sentiment; for example, selling a work of art may take some time.
How Do I Know What Assets To Use First?
Some things to consider include:
How much value do you have in each individual asset and as a total?
How much tax you would pay on cashing in any of those assets for a purchase or to withdraw as income?
That sufficient access is retained to liquid assets that you will use to finance any other planned purchases, or for income in the shorter to medium term.
This is where housing wealth can become part of your future financial planning.
How Can I Use The Equity In My Home? Downsizing may be something you want to consider and this could mean that after moving fees, legal costs and any Stamp Duty payable that you have a sum of money to invest due to the lower purchase price of the property you move into. E.G. You sell your 3 bed family home for £300k and purchase a one bedroom apartment at £175k. After deducting a further £7k for all associated costs, bringing total spent to £182k on the move you have £118k in the bank following sale of your own home. The other major consideration is whether releasing equity - using an equity release product, may be a more efficient use of your assets to cover any planned purchases or to draw income from.
This is where it becomes vital that you seek advice from an appropriately certified adviser as to the best use of those assets to meet your financial objectives.
*taxation advice is a specialist role and is not offered by Mark Varela Equity Release Advice