I’m 74 but have a small pension. Can equity release boost my retirement?

Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader, explaining how equity release mortgages can be a way to increase your income in retirement - but there are downsides. (Photo: MoMo Productions/Getty/Digital Vision)

Things to consider

A reader asks: “I’m 74 and my wife and I have relatively small private pensions, alongside our state pensions. We own our home outright, which is worth about £300,000. I’ve been looking into equity release as a way to improve our income, but I’m concerned about the impact on our children’s inheritance. What should we consider before making a decision?” (Photo: Gareth Fuller/PA)

Equity release: potentially a useful financial buffer

Nick Mendes replies: “Thinking about how to improve your income in retirement is a sensible and practical step – particularly when most of your wealth is tied up in your home. Equity release is one option for many people consider, and in the right circumstances, it can provide a useful financial buffer. But as you’ve rightly pointed out, it’s not a straightforward decision. There are long-term implications, especially when it comes to inheritance. The most common form of equity release is a lifetime mortgage. This allows you to borrow money against your home’s value without needing to move or make monthly repayments. The loan, along with the interest it builds up, is usually repaid when the property is eventually sold – often when you or your spouse pass away or move into care.” (Photo: Rosemary Roberts/Alamy)

How the interest works

Nick continues: “The money you borrow can typically be taken as a single lump sum, in smaller amounts over time, or through what’s called a drawdown facility, which allows you to access the funds gradually. In many cases, a lifetime mortgage can help people top up their income, manage home repairs, or simply enjoy a more comfortable retirement. But it’s important to understand how the interest works. Because interest compounds over time – meaning you pay interest on the interest – the total debt can grow quickly. As an example, a loan of £70,000 at around six per cent could more than double in just over a decade.” (Photo: gemredding/Getty/iStockphoto)

Protecting a portion of your home's value

“Some plans do allow you to protect a portion of your home’s value for your children, but this will reduce how much you can borrow. Others offer the option of making interest payments each month, which can help stop the debt from growing – though not everyone has the income or savings to commit to regular payments in retirement. For those who do, there are discounted products available that reward borrowers who pay the interest as they go. The monthly cost to do this will depend on how much you borrow, and some products offer flexibility in case you need to stop making payments in the future. Families sometimes help cover the interest too, to preserve as much equity as possible over time. If you don’t need the full amount immediately, a drawdown arrangement could be worth considering. This allows you to borrow only what you need now, with additional funds pre-agreed for the future. Because interest is only charged on what you’ve actually taken, this can reduce the overall cost. That said, the interest rate on future drawdowns is not fixed at the outset and may be higher at the time of withdrawal.” (Photo: Getty/Moment RF)

The wider financial picture

“It’s also worth reviewing how this might affect your wider financial picture. If you’re receiving any means-tested benefits, such as pension credit, then a large lump sum could impact your entitlement. And while equity release products don’t typically involve affordability checks, lenders will still want to ensure the product suits your situation. There are fees to factor in too – legal costs, valuations, and arrangement charges. And some products have early repayment penalties that apply for longer than on traditional mortgages, which could be an issue if your circumstances change and you decide to repay the loan early. Because you’re thinking about the impact on your children, it’s a good idea to involve them in the conversation. Being open about your plans can help avoid surprises later and might even open up alternatives such as financial support from family or decisions around inheritance and care.” (Photo: Jitalia17/Getty/E+)

Complex decisions, with details that matter

“Equity release isn’t the only way to access funds. You could look into downsizing, which might give you access to capital without needing to borrow. Or a retirement interest-only mortgage could be another option, particularly if you’re comfortable making regular repayments and want to maintain more of the equity in your home. These are complex decisions and the details matter. Speaking to a mortgage broker who deals with later-life lending can help you understand the full range of products available, how they work, and what’s most suitable for your needs and for the legacy you want to leave.” (Photo: Getty)