Many people are scared of equity release because of the rumours they’ve heard from friends, family, and acquaintances.
An impartial financial advisor will always tell you the truth about equity release. They’ll let you know if it’s a suitable option for your retirement plans.
The numbers speak for themselves, too: according to the industry’s trade body, the Equity Release Council, over 33,000 new equity release plans were taken out in the first 9 months of 2019 – that’s an 8% year-on-year rise. This jump shows the boosted interest and trust from both consumers and financial advisors in equity release as a viable retirement financial strategy.
The myths surrounding equity release mean it’s easy to miss the ways it could benefit you. We’ve busted the five most common equity release myths to show you that it may, actually, be a suitable option for your future financial strategy.
Rumours always start with a grain of truth. In the 1980s, equity release was unregulated and full of unscrupulous providers. Many customers were left out of pocket and owing huge sums of money.
This all changed in 1991 with the introduction of Safe Home Income Plans and strict regulation came into force.
SHIP is now the Equity Release Council, setting the standards for equity release providers across the UK. Tight regulation and an effort to improve the reputation of equity release over recent decades means it’s now a viable – and safe – option for over-55s seeking ways to inject capital into their retirement or investment plans.
The Reality: If you’re still paying off the mortgage on your property, equity release could be a way to free up your capital and – quite literally – ‘release’ you from the burden of your mortgage repayments.
You can take out equity on your property and use this to repay your mortgage costs. This type of equity release plan is a Lifetime Mortgage: you can repay the loan with the sale of your home. That means you could stay in your home for the rest of your life – and free up your capital to enjoy your retirement.
You can even protect some of your property’s equity to make sure you’re leaving your loved ones an inheritance. If you still have a mortgage on your property when you die, your family would have to sort out the repayments – and lose a lot of their inheritance. With a Lifetime Mortgage, they won’t have to repay any outstanding mortgage from your estate: instead, they’ll receive the dedicated portion of the proceeds of the property sale.
The Reality: The term Lifetime Mortgage for equity release can seem confusing: you might think you’ll still have to make monthly repayments like a normal mortgage.
In fact, you can choose to have the interest on the loan ‘rolled up’ and paid with the sale of your property. That means there’ll be no monthly payments at all – and you’ll be free to spend the capital raised through the equity release plan as you wish.
If you want to leave a larger portion of your estate to your loved ones when you die, you can choose an interest-only equity release plan. You’ll pay the monthly interest payments on the loan, so these don’t accrue over time. These payments are typically much lower than standard mortgage repayments, so you’ll benefit from extra capital and the peace of mind that you can leave a gift to your family in your will.
The Reality: This is where equity release got a bad reputation in the past. As house prices fluctuate, homeowners were worried that the value of their home would plummet below the outstanding repayments on the Lifetime Mortgage.
All of our equity release plans are secured with a ‘negative equity guarantee’ and are accredited by the Equity Release Council. This means that, should your property be worth less than the amount you borrowed, you and your family won’t be left with a huge bill.
You can also choose to make interest-only payments, or interest and some capital payments, on a monthly basis. This reduces the overall cost of the Lifetime Mortgage, as you’ll pay back the loan faster (and therefore only pay interest on the remaining loan – so the faster you repay it, the less the total interest will cost).
The Reality: You can only borrow a maximum amount for a Lifetime Mortgage, which is typically up to 60% of the total value of your home. This means you can free up your capital in the knowledge that you still hold 40% equity.
Some people may opt for something called Home Reversion instead of a Lifetime Mortgage. This is often where the confusion about ownership in equity release arises: Home Reversion is different to a Lifetime Mortgage.
Home Reversion involves you selling some or all of your property to the provider to release equity, and in return you can live in your property until the end of your life. A Lifetime Mortgage, however, is a loan against your home – you’re still the full property owner.
Whether you choose a Lifetime Mortgage or Home Reversion plan, you could still be entitled to move home. It does vary from lender to lender, so if you think you might want to move house after taking your equity release plan, make sure to tell your independent equity release advisor this.
The equity release loan moves with you. As long as your loan provider agrees your new home is suitable as a security, you can port the equity release plan over with you when you move.
Equity release isn’t for everyone. There may be other retirement and investment plans that suit your circumstances better. As with any financial strategy, there is some risk involved in equity release.
Call us on 0800 680 0356 to find out if you’re eligible for equity release. One of our dedicated equity release experts will then get in touch to talk through your options and help you to decide if it’s the right financial strategy for your retirement.