If you’re thinking of buying a holiday home abroad, releasing equity can be an excellent way of funding it without affecting your retirement income. Statistics from the Equity Release Council report that in 2018, homeowners unlocked €3.94 billion from their property, which was an increase of 29% compared to 2017. Many individuals used their property wealth to fulfill their retirement plan, with over 80,000 people releasing equity.

Steven Hart, the managing director of overseas real estate agency Javea Properties says that many individuals in the UK are buying their second homes abroad using their savings. Releasing wealth from your home can significantly boost your savings. As such, you can effortlessly raise money for purchasing your second property, funding mortgage deposits or make ongoing repayments.

Lifetime Mortgage Equity Release Plan

Now, there are several equity release plans. However, the most common one is the lifetime mortgage. This allows individuals to release their wealth either as a lump sum, regular income or in a ‘drawdown facility ‘where you withdraw cash as per your limit.

Using a drawdown facility method, individuals mustn’t make regular monthly payments for their loans. Instead, the interest accumulates over time. When one gets into long term care or they pass away, their house is sold, and that’s when the loan, amount borrowed plus interest, will be repaid.

However, some plans also allow homeowners to repay their loans sooner thus reducing how much interest they pay. In fact, surveys show more than 75% of products nowadays, allow individuals to make ad-hoc penalties free payments during their loan terms.

Mr Hart revealed that many people see themselves spending time both in the UK and abroad after retirement. And it’s not just because of the sunny climate in these countries. Some people have families abroad, others just want to experience new cultures while others are after an alpine winter. Therefore, so long as they maintain the property, reside in their UK home for 183 days, every year, are UK taxpayers and honor the terms and conditions for their equity release plan, they’re suitable for these home payment programs.

Explore All Options First

Note that although equity release is an excellent way of funding your second home, it comes with some constraints. Yes, remortgaging is cheaper over the long term. However, one will have to make regular repayments which could significantly affect your retirement income. Again, individuals are offered fewer mortgage products since lenders may have borrowing age limits. Also, lenders can be reluctant to finance retirees.

You’ll also need to continue staying in the UK. Equity release plans require that you continue living in your property for not less than six months every year. Therefore, even though they help you buy a holiday home abroad, they’ll not permit you to permanently relocate.

Get Expert Advice

Taking an equity release plan is a huge decision that can affect other areas of finances such as your estate value as well as your entitlement to state benefits. It’s thus wise that you speak with a financial expert to understand the impact of a lifetime mortgage. At the same time, individuals should involve their family members to make sure they know how this financial decision will affect their inheritance. Remember that once you pass away, your house will be sold to repay the loan. Therefore, your family will not inherit it.