A step-by-step guide to managing your property in retirement ¦ Property Guides on Times Online

- For the vast majority of people, their home is the most valuable asset they will ever own. Once they retire, it can be become a very useful means of providing extra income, or a capital lump sum, should their pension funds not prove sufficient.

- Equity release is a way of exploiting the value of your property. Essentially, the homeowner sells part or all of their home to the equity release provider, but retains the right to live in the property until they die, sell up or go into long-term care.

- While equity release was once seen as the last refuge of those desperate to boost their retirement income, the housing market boom of the past 20 years has meant that withdrawing cash from your property is now much more common. In 2006, £1.1 billion was released from homes in the UK; last year the total increased by almost a quarter, to £1.4 billion.

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- The reasons for releasing equity have also changed. Norwich Union research found that almost a third of people release equity from their homes to carry out home improvements, while 27 per cent do it to improve their standard of living. Around 10 per cent use the cash to pay off debts while 8 per cent spend the money on holidays.

- The vast majority of equity release schemes are available only to those aged 55 or over. If you have severe health problems it may be possible to get an equity release scheme at age 50. However, the older you are when you take equity release, the better the terms you will be offered.

- Wealthy pensioners may also want to use equity release to reduce their inheritance tax (IHT) liability. IHT is payable at 40 per cent on the value of your estate over a certain threshold, which is £300,000 in the 2007/8 tax year. So if your property is worth £500,000 and though you do not wish to leave the house to your dependents, nor do you want to leave them with a huge tax bill, you could release £200,000 of equity to spend during your lifetime.

- Note that you cannot avoid IHT by gifting your property to your dependents but continuing to live in it during your lifetime. If you continue to derive benefit from a gift – for example by living in the home – it will still be counted as part of your estate for IHT purposes.

- While richer retirees concern themselves with IHT bills, pensioners at the other end of the scale face different problems. According to Scottish Widows, one in five retired are still struggling to pay off the mortgage. They owe an average of £38,000 each.

- The rising number of pensioners taking mortgages into retirement has meant an increase in sale and rent back schemes, which allow homeowners to sell their property for around 70 per cent of market value and then rent it back from the new owner at market rates. Unlike equity release products, these schemes are not regulated and should be treated with extreme caution.

- There are other options for those who find themselves aged 65 with a mortgage still to pay. For many people, the idea of delaying retirement is unpalatable: downsizing to a smaller home, or a home in a cheaper area, may seem a more attractive option. However, the downside with downsizing is that it is very expensive: estate agents’ fees, stamp duty, legal fees and moving costs will eat into your profits.

Jargon-buster

Drawdown: when you take out a lifetime mortgage equity release scheme, you can opt either for a single advance or for drawdown, which means you will be paid in several instalments.

Negative equity: this is a situation in which the value of your property is less than the amount which you owe to the bank. All equity release plans approved by SHIP (Safe Home Income Plans) come with a no-negative equity guarantee.

Pre-owned assets: assets which you once owned, but have now given away to someone else. These are included in your estate for IHT purposes if you die within seven years of making the gift, or if you continue to benefit from them after you have given them away.

Websites

Council of Mortgage Lenders guide to equity release

Financial Services Authority guide to equity release

IFA Promotion

Key Retirement Solutions

Norwich Union guide to equity release