Equity release for home improvements

This content was reviewed and approved by Amy Fletcher.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

Finding the funds for a property upgrade can be a challenge. Whether you’re adding an extension, fitting a new boiler, or going for a full kitchen refurb, any type of home renovation can put a strain on your finances.

If you’re over 55 and a homeowner, using equity release to unlock tax-free cash tied up in your property could give you the money you need to modernise your home, potentially increasing its value.

This guide will explain why equity release for home improvements could be right for you.

How does equity release for home improvements work?

Equity release allows you to access a portion of the value of your property as tax-free cash. You can spend the money on whatever you please, such as home improvements or a more comfortable retirement, without having to sell your home or move out.

A common way of releasing equity for home improvements is through a lifetime mortgage. Using your home as security for the loan, you’ll borrow money from your provider in the form of a loan which is repaid from the sale of the property when the last borrower dies or moves into long-term care.

With some lifetime mortgages, you can decide whether to repay some, all, or none of the interest each month. However, lifetime mortgages use compound interest, so the amount of interest you’ll pay is based on the loan’s value plus any interest already accrued. Over time, this can significantly increase the total amount of money you owe.

Equity release also means that when you sell your home, you’ll receive less than the full resale value, reducing the amount of inheritance you can leave for others. It may also affect your tax status and eligibility for some benefits.

Do I qualify for equity release for home improvements?

Releasing equity from your property allows you to spend the money however you like, including home improvements. Equity release is available to individuals aged 55 and over.

To qualify for equity release, you’ll need to meet certain criteria including:

• You must be a minimum age of 55.
• Your home must be in the UK.
• Your property’s value meets the minimum amount required by your lender, typically £70,000.
• The lifetime mortgage is for your main residence.

How much equity release for home improvements can I get?

You can usually borrow between 20% and 60% of your home’s value with equity release. However, this depends on several factors such as:

• Your age.
• The value of your property.
• The type of property (for instance, some providers refuse equity release for thatched properties, retirement properties, and those with restricted leases).
• The property’s location (if it’s built on a flood plain or near busy pubs).

The minimum amount of equity you could release as your first lump sum is usually £10,000. You can work out how much equity you could release for home improvements by using our free equity release calculator.

What types of equity release for home improvements are there?

There are two main types of equity release: a lifetime mortgage or home reversion plan. Either option could be used for home improvements, to fund your retirement, to help family or friends financially, or anything else.

What are the advantages of equity release for home improvements?

One of the key advantages of equity release is that it offers flexibility. You can choose to receive your money as a lump sum or in regular payments, and you can remain in the property and enjoy the home improvements you’ve made.

Some of the advantages of equity release for home improvements include:

1. Quick access to funds

Home improvements can be expensive, especially larger projects such as extensions, loft conversions, garden landscaping and other major refurbishments. With equity release, you’ll have access to substantial funds tied up in your property to pay for these refurbishments without dipping into your savings or taking out separate loans.

2. Avoid extra debt

Equity release means you can avoid taking on additional debt to pay for home improvements. Instead of taking out a traditional loan or remortgaging your home, you can tap into the equity locked in your property and avoid the immediate loan repayments and interest charges. Instead, the loan is repaid when the last owner dies or moves into long term care.

3. Protect your savings

Rather than spend your hard-earned savings on home refurbishments, you can access the equity in your property instead. Whether you spend that equity on home improvements, retirement plans, or anything else, your savings will be preserved.

4. Increase the value of your home

Many home improvement projects have the capability of increasing the value of the property. Not only that, but renovations and upgrades can enhance the look and functionality of your home and make it more attractive to potential buyers. Any boost in value could also deliver an increased inheritance when the property is sold.

Can I remortgage for home improvements instead of taking out equity release?

Yes, you can remortgage for home improvements and release equity built up during the time you’ve owned the property. You can do this by moving your existing mortgage to a new deal, either with your current lender or a different provider.

Remortgaging in later life can be difficult because offers are based on your age and income. Also, if property prices fall you could end up in negative equity where the value of your home is less than the remaining balance on the mortgage. However, equity release products from Equity Release Council approved providers usually include a no negative equity guarantee, so you won’t owe more than the value of your property when it is sold.

Remortgaging can be a slow process and take several weeks which could be problematic if you need to access equity quickly to pay for home improvements or emergencies. You may also incur exit fees if you move to a new lender. Not only that, but if you decide to remortgage and don’t keep up with your repayments, your home could be repossessed.

Are there any limitations of equity release for home improvements?

Most lifetime mortgage providers will require that your home is in a good state of repair. If you plan to use the funds to carry out essential repairs, your options may be more limited. You might need to complete any essential repairs before you apply for a lifetime mortgage.

Are you considering equity release for home improvements?

If using equity release for home improvements is something you’d like to explore, our equity release advice service will guide you through the process and help you figure out if it’s a good option for you. Alternatively, contact us today.