All of our equity release plans come with a ‘negative equity release guarantee’. But what does that actually mean, and how does it protect you?
Decades ago, some people on equity release plans got trapped. House prices plummeted – and those who’d taken equity now owed more than the property was worth. Something had to change!
In 1991, the Safe Home Income Plan was established to protect consumers who took out equity release plans.
The SHIP programme was designed to ensure fairer terms for consumers – and to revamp the equity release industry’s reputation. Tight regulations meant unscrupulous providers could no longer operate: equity release became a safe option again.
The SHIP programme rebranded to the Equity Release Council in 2012 and expanded its scope from equity release to wider-field financial advisors.
The regulations and guarantees offered by the ERC remain the same:
That last point is incredibly important: many people worry that taking an equity release plan could tie them into the worries of owing lots more than their property sells for.
All of our equity release providers offer this guarantee, as does any reputable provider that adheres to the ERC standards. If you’re talking to a provider that won’t offer a ‘no negative equity guarantee’, walk away from them!
When your house is sold – either when you go into long-term care or when you pass away – that’s when your Lifetime Mortgage is paid off. The proceeds of the sale pay off the loan – and any remaining amount is left for your family to inherit.
Even if your house sells for less than it was worth when you took out the Lifetime Mortgage, you or your family won’t have to find thousands of pounds to make up the difference. Your estate agent and solicitor fees will be taken from the sale proceeds first. If the remaining amount of the proceeds is lower than the Lifetime Mortgage and accrued interest left to pay, your family won’t have to foot the rest of the bill.
The loan provider will be entitled to the rest of the sale proceeds to cover as much of the debt repayment as possible – but that’s it.
In reality, this situation is already very uncommon: you can only borrow a set percentage of your property’s value (typically 60%). Only in very exceptional circumstances would your house sell for such a significant amount less than it was worth when you took out the Lifetime Mortgage agreement.
If you’re worried that you’re not going to be able to leave your family any inheritance, especially if you think house prices might change a lot in the future, you could opt for an additional insurance policy.
The inheritance guarantee means you can protect a chosen proportion of your home for your loved ones to inherit. This will reduce the maximum amount you can borrow against your home – but ensures that you’re leaving a guaranteed portion as an inheritance.
Another way to ensure your loved ones receive a larger portion of your property’s value is to pay a monthly sum towards your Lifetime Mortgage.
You can choose to pay only the interest each month, which means the final amount owed will be just the amount initially borrowed and not any accrued interest.
Or, to reduce the loan amount further, you could opt to pay interest and some capital each month, too. This chips away at the borrowed amount, and means interest doesn’t accrue over time – significantly lowering the total cost of the Lifetime Mortgage so that you can leave a larger portion of your home as your inheritance.
Equity release is a great way to free up a tax-free lump sum of cash to fund your retirement or to help out family members with housing, university, or weddings. However, it’s a big decision not to be taken quickly.
To find out if equity release would suit your personal situation, contact us on 0800 680 0356 for a free chat. If it’s a possible solution for your needs, one of our expert equity release advisors will call you back to discuss your options in detail.