Home equity used to finance home improvements
The number of homeowners over the age of 50 unlocking home equity to pay for home renovations nearly doubled in the three months to September compared to the previous three months, according to a Hodge Bank study.
The bank found that the number of senior homeowners using products that allowed them to free up their home equity to pay for home improvements rose from 12% to 22%.
While there are several products that allow homeowners to unlock equity in their properties, including interest-only retirement mortgages (RIOs), one of the most common ways to do this today is to take out a lifetime mortgage, often referred to as equity release.
According to Simon Gray, chief executive of the stock release consulting firm HUB Financial Solutions, freeing up equity can be a good way to pay for home adaptations for those who later in life wish to stay in their current home.
He said, “It’s very common for our life mortgage clients to free up equity to pay for home improvements and adaptations. Just over four in ten clients we counseled intended to spend some of the money on adapting or improving their home and the average amount they expected to spend was just under 10 £ 000, although some are six or more digits.
“Home improvements can mean spending relatively large lump sums now to provide benefits for many years to come. These perks can take the home to a higher standard, making it more comfortable to live in and more affordable to manage. This could be repairs, upgrades such as new windows to reduce future energy bills, or redecorations. These types of changes are also considered investments because they generally increase the value of the home and reduce costs.
“People who intend to continue living in a house until the end of their life may also need adaptations at some point such as handrails, stairlifts and new bathroom equipment. bath or kitchen.
“A lot of retired homeowners don’t have a lot of cash to pay for this kind of work, so they need help finding options. The flexibility of modern life mortgages makes them more accessible to more people. For example, we would expect more new borrowers to use the interest service feature, choosing to pay some or all of the monthly interest on their loans from their income. This allows homeowners to access the lump sums they need at competitive rates while allowing them to control how quickly the loan grows in the future. “
While freeing up equity may be a good choice for those looking to make improvements to their home later in life, those considering this option should be aware that it can have a long-term impact on finances, in particular on the inheritance left by the borrower.