Equity release has become a popular option for those approaching or already in retirement to free up money from the home that they own.
However, equity release poses several challenges and risks that not all homeowners wish to undertake. So, what alternative is there?
In the past, people approaching retirement have found it difficult to find a suitable mortgage product because of their age, even though they might be able to meet the repayment requirements.
In 2018, the Financial Conduct Authority (FCA) permitted mortgage providers to offer a new type of home loan called retirement interest-only (Rio).
This removed many of the obstacles that had made it tough for an individual to borrow against their home into their later years.
A Rio may be suited to retired homeowners who have a regular income, whether from part-time work or a pension and allows them to stay in their home or move in future, while still releasing a cash lump sum.
Despite the opportunity that Rios offer, a Freedom of Information request by Telegraph Money found that just 984 Rio loans were taken out in 2019. In comparison, during the same period, 85,497 new equity release plans were taken out.
The key reason for the poor uptake is because few mainstream providers offer these deals to customers. In fact, of the major high street names, only Nationwide Building Society offers a Rio product.
Data provider Defaqto has found that older homeowners can waste thousands by using equity release when a Rio mortgage would be better suited to their circumstances.
This is because, while Rio interest rates tend to be higher, the compounded way interest is charged on equity release means debts mount much faster.
Rio loans have, therefore, made it easier to borrow into retirement, but many homeowners are still blocked from taking out a mortgage because of the strict affordability tests.
This is because borrowers must demonstrate that the person with the lowest income could afford the repayments alone, should their partner pass away.