A recent survey found that 55% of homeowners aged 55 and over didn’t realise that the cash lump sum they would receive from releasing equity in their home is tax free.

SunLife asked 1,007 homeowners aged 55 and over about their understanding of equity release. And despite the fact that three in 10 would consider taking out an equity release loan if they needed a cash lump sum, just 11% fully understand all equity release product features.

The research revealed that 55% didn’t know the lump sum was tax free, rising to 64% of those aged 55-65.

SunLife’s research also showed that 52% didn’t realise you can still move home if you take out equity release and 65% didn’t know you could take out equity release even if you still have a mortgage.

Simon Stanney, equity release service director at SunLife, said: “Three in 10 over 55s would consider equity release, and it is possible that many more would too if they understood the product properly.

“But we are in a situation where over half of homeowners age 55 and over think the cash sum would be taxed, that they would be stuck in the same home if they did equity release and that it is not possible to do equity release if you still have a mortgage – which 18% of over 55s do.

“Our research shows that one in five over 55s say they feel worse off, financially, than they expected to be at their age. However, many have got a lot of equity tied up in their homes.”

In fact, SunLife’s research shows that homeowners aged 55 believe their houses are worth £290,659 on average. Most have had their homes for more than 20 years (when the average home was worth £51,633) which means an increase in value of £239,026.

Downsizing offers a solution, but SunLife also reveal that two thirds of over 55s don’t want to move, rising to 71% for those aged 70 and over.

Stanney added: “This is a generation that are generally property rich and cash poor due to healthy increase in the value of their homes, but inflation eating away at pension pots and increased living costs. But 62% of those surveyed said they categorically did not want to downsize, which means the solution for the majority could be to unlock some of the value in their homes via equity release.”