There is a lot to consider before you decide to take out an equity release plan and one of the factors is how it may affect any benefits you receive. Most government benefits are means-tested, meaning your income and savings are taken into consideration before deciding if you’re eligible. Equity release may also affect any funding for care you receive from your local authority.
It’s always best to weigh up the impact of losing your benefits compared to the gains you will get from an equity release plan.
If you already claim benefits you are obliged to tell the Department for Work and Pensions (DWP) or council about the money you expect to receive from equity release. If you’re using the equity release cash to pay off a loan or existing mortgage the money will not go into your bank account but instead will go straight to the mortgage company from your lender’s solicitor when your application is complete. This usually means your benefits will not be affected because the money cannot be counted as savings. However, this is a complicated area and it’s always best to speak to a qualified equity release broker before you make any decisions.
One key thing to be aware of is that if you are paying off a mortgage with your equity release cash it probably means you won’t be making monthly payments anymore. This means that unless you spend the money on something else, your savings will increase which could affect your benefits if it takes you over a threshold for eligibility.
Which types of benefits could be affected?
The state pension is not affected by doing equity release because it is a benefit available to everyone once they reach state pension age. However, pension credit is a means-tested benefit that tops up the state pension for people on low incomes which could be affected by an increase in your income through equity release. Council Tax Reduction is given to people who have less than £16,000 in capital. If your circumstances change and your capital (savings and investments) goes above this figure then your eligibility will be affected.
Disability benefit wouldn’t be affected by equity release because it is paid regardless of your income or capital.
An advisor will also be able to inform you about a type of benefit fraud called ‘deprivation of assets’. If you were to take out equity release and then spend or give the money away, while still claiming benefits you could potentially be investigated for fraud. This is why it’s so important that you tell the DWP about what you’re using the money for. If it’s to help with home improvements, paying off debts or to help with mobility it may be deemed reasonable.
You can check your benefit entitlement using the government’s calculator here
:: Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisors.