Is equity release a good idea?

Equity release can be a good idea for homeowners who would like to obtain some extra cash in later life. Taking out an equity release plan can enable them to enjoy a better retirement, whether that’s by paying off an outstanding mortgage or existing debt to free up some monthly income, or by making home improvements. In fact, the money released can be used for any purpose.

Advice to avoid any pitfalls

You must speak to a fully qualified adviser before taking out an equity release plan. They will be able to give you personalised advice based on your current financial situation and will explore alternative ways to reach your objectives.

All our advisers are regulated and follow strict codes of practice, so you can be confident that your adviser will only recommend equity release if it is in your best financial interests.

Exploring your alternatives to equity release

Options that your adviser may recommend before equity release include:

  • savings, a pension or other investments which could be utilised first
  • asking family or friends for financial help
  • exploring your entitlement to benefits or other financial help to meet your objectives such as home improvement grants
  • a conventional mortgage may be better suited to your needs

Your answers to a simple fact find questionnaire which they will conduct over the phone will shape the advice they give you.

What’s the catch?

Equity release isn’t suitable for everyone, which is why – as well as exploring your alternatives – your adviser will ask in-depth questions about your financial objectives now, and in the future.

Here are some of the reasons why your adviser may tell you that equity release isn’t right for you (at the present time):

  • you cannot release enough money to be able to repay your existing mortgage with the amount available through equity release
  • you only need short-term borrowing – as an equity release plan is designed to only be repaid upon your death or entry into long term care charges apply (usually for the first 10 years) should you wish to repay the plan early
  • you are not able to fully understand the information presented, therefore are unable to make an informed decision
  • your property is in Trust, or you have another adult on the deeds that doesn’t want to take out an equity release plan
  • an equity release plan would negatively impact your tax position, or you would lose your eligibility for means-tested benefits and pension credit

This doesn’t mean that you should never explore equity release again; it simply means that right now your adviser has concluded that equity release isn’t the right option for you. Once they have decided that, then until something changes, they won’t be able to make an application for you.

Is equity release safe?

This is the question that we get asked the most and it’s only natural that you want to know how safe equity release really is, as your home is likely to be your biggest asset. And the decision to release the equity from it is therefore likely to be one of the biggest financial decisions you will make.

You can get peace of mind knowing that the equity release industry is authorised and regulated by the Financial Conduct Authority. That means that all lenders and advisers follow their rules governing the sale of equity release products.

The Equity Release Council is the official industry body, committed to making sure everyone who releases money from their home is treated fairly and honestly at every step. They achieve this by setting advice standards and continually monitoring the evolution of consumer-focused products.

As an adviser member we will only recommend an equity release plan to you if it meets the Equity Release Council standards. These are:

  • The right to remain – if the property remains your main residence and you keep to the terms of your contract, you have the right to continue to live in your home until you pass away or need to move into permanent care.
  • The right to move – you can move to another home, as long as the new property meets the terms and conditions of the equity release provider and provides adequate security for the loan. This is often called porting your loan.
  • A no negative equity guarantee – house prices are constantly fluctuating and can go down as well as up. A ‘no negative equity guarantee’ ensures that when the house is sold if the amount cannot pay off the loan plus interest due, then neither you nor your estate will be liable to pay the difference.
  • Fixed interest rates – on a lifetime mortgage (where you take out a loan secured on your property) the interest rate must be fixed. Or, if you do get a variable rate deal, then there must be a cap (upper limit) above which the rate can never rise, again fixed for the life of the loan.

Choosing the right plan

Whether you’re considering a lifetime mortgage, or a home reversion plan your adviser will be able to give you personalised advice explaining the different features and therefore which plan is most suitable.

Whilst rate is important, they will consider all the plans features too, so will ask the relevant questions to be able to match you perfectly to the right ones. This depends on what is important to you but may include things such as:

  • The option to make voluntary interest payments.
  • The ability to protect a percentage of your property value as future inheritance.
  • The right to move home in the future without penalty.

Is equity release a good idea?

As outlined above there are many things to consider when exploring equity release and whether or not it’s right for you requires expert advice. It is important to remember that equity release will reduce the value of your estate may affect your entitlements on means tested benefits.

When you unlock equity from your property, you are making a lifelong commitment, so it’s extremely important to understand all of the facts and make a decision in your own time. Should you decide to go ahead we offer UK whole of market advice which we charge a fee of £995 for, payable only on completion.

In conclusion, equity release is not suitable for everyone, but it is helping a large number of people every year to enjoy a financially secure later life.

 

Equity release may involve a home reversion or a lifetime mortgage, which is secured against your property. To understand the features and risks, ask for a personalised illustration. Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.