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How to use your home to fund your retirement

3 ways to get your property to pay

Putting your property to work

Does it look like you’re going to be asset rich and cash poor when you stop working? 

If so you might want to think about using your home to boost your income for the retirement you deserve.

Use your home to fund retirement

To help you decide if it’s right for you, we’ve put together some guidance on 3 popular choices for turning your home in to cash. 

Downsizing

If you’ve paid off your mortgage or have a lot of equity in your home, selling your property can release a large sum of money. Buying a cheaper property or renting should provide you with a lump sum that you could draw on in retirement.

The chances are that cheaper means downsizing to something smaller. So this can also make sense if your home is starting to feel too big – perhaps once children have grown up and moved out. Added to this, if it’s an old property that’s needed lots of maintenance over the years, or is inefficient and expensive to run, a more modern and easy to manage property can be appealing.

But there are some things you’ll need to think about to be sure it’s a choice that works for you:

  • Financial goals. For downsizing to be a successful money move you’re going to need to know how much income you want it to provide. Understanding your retirement finances and the lifestyle you want should help you identify how much extra you need
  • Property prices. Once you know how much cash you want to keep back you’ll know how much you should have to spend on your new property and whether it can afford you somewhere you’ll be happy to call home
  • The cost of moving. It’s easy to underestimate all the fees and taxes that come with a move. Make sure you factor in to your calculations estate agent and legal fees, stamp duty and moving costs

Letting out a room in your house

If you want to stay where you are but have more space than you need, taking on a lodger could be a way to bring in some extra money.

This can be a good option if you just want a small and regular supplementary income – as well as some extra company. The rent you can get for a room in your house will depend on your location, so do your research to see if it can give you what you want. 

There are lots of websites and apps dedicated to advertising and renting rooms, so it’s easy to check out the competition in your area.

If you choose to rent out part of your main or only home, you have certain rights and responsibilities you should be aware of:

  • You may be able to earn up to £7,500 a year tax free under the Rent a Room Scheme
  • You have to keep the property safe and in a good state of repair
  • Depending on the type of rental agreement, your lodger will have certain rights, such as the notice you must give if you want them to leave

Equity release

Equity release is the general name for products that let you access cash tied up in the value of your home without moving. 

A popular type of equity release is a lifetime mortgage. This is where you take out a loan secured against your home that is only repaid when you go into long-term care or when you die. 

When you move into long-term care or when you die your home will be sold. The money from the sale pays off the loan and anything that’s left can go to your loved ones.

By taking out a lifetime mortgage you can free up some cash for your retirement while still owning and living in your home.

But a lifetime mortgage charges you interest on the amount you borrow, which means you can end up repaying a lot more than the cash you take from your home. This would then have an impact on the inheritance you are able to leave behind.

To get an idea of how much you may be able to release from your home, you can use our simple equity release calculator.

If you’re considering equity release, you’ll need to speak to a financial adviser, who may charge for their service. They can explain the features of the product as well as other things you need to think about, such as the potential impact your decision may have upon your tax position and eligibility for welfare benefits. 

It’s important to consider the benefits, costs and risks before deciding whether a lifetime mortgage or equity release product is right for you.

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