Equity Release Myth Busting
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Equity Release Myth Busting
What is equity release?
Equity release is the name given to a kind of mortgage that enables people over the age of 55 to release funds from their property. They’ve got to have some equity within their home.
The key here is that it’s not assessed on income, it’s assessed on your age and the value of the property. It also doesn’t require you to make interest payments.
Myth 1: equity release isn’t regulated or safe
Myth 1: equity release isn’t regulated or safe
We are a regulated business. We only use products regulated by the Financial Conduct Authority, which provides clear, defined consumer protection. Regulators oversee the companies providing those products and us as advisors on those products.
Myth 2: It’s called a lifetime mortgage, so I have to stay in my property for the rest of my life
We can see where this one comes from, because the name seems to imply that. But actually no, you don’t have to stay in the property. You’ve got flexibility.
You could repay the loan if you have the funds available. These mortgages are also portable. So, if you chose to downsize, it may be possible to move that mortgage to another property. You’re not stuck in that property as long as the new one meets the lender’s criteria.
Myth 3: You can end up owing more than your house is worth, leaving family with that
If you don’t make interest repayments, any interest is added to the mortgage. So if you were to live to a great old age, the loan plus the added interest could end up greater than the value of the house.
However, when this is unwound on your death or going into long-term care, any outstanding monies would not need to be paid by the beneficiaries of your will. The debt is capped. It cannot exceed the value of the property and there’ll be no requirement upon the beneficiaries to make any repayment.
Myth 4: Equity release rates are really expensive
To put it in context, they are higher than standard residential mortgage rates. But they’re not exceedingly higher. Currently, we’ve got rates starting at 6% and going up to 8% plus – so yes, they are higher, because the lender is taking more risk. But they are actually not as high as people probably imagine. [podcast recorded in November 2023]
Myth 5: I’ll lose control and ownership of my home
No – because you still own 100% of your property. What you’ve done is the same as a conventional mortgage. You own the property 100% outright, but you have raised a loan against it. The lender takes first charge security for their loan against your property.
Myth 6: I haven’t completely paid off my existing mortgage so I can’t look at equity release
Having an existing mortgage won’t stop you taking out a lifetime mortgage. In fact, many clients use lifetime mortgages for the repayment of existing interest-only mortgages.
Depending on how much is outstanding with your existing lender, your age and the value of the property, it may be possible to refinance that existing mortgage with a lifetime mortgage.
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Here to offer guidance on financial planning for people’s needs, both now and in the future. We use our expertise to offer financial solutions that fit each person’s needs and requirements.
What are the common uses of equity release?
As we’ve just described, one is to repay an interest only mortgage that has reached the end of its term. The existing lender is requesting the repayment of that loan.
We also do a lot of work to help clients improve or adapt their existing home to make it suitable for retirement. Plus, it can help generation planning and helping children get on the property ladder. Clients raise finance to help them with a property deposit.
It enables people to do things that they’ve always wanted to do but haven’t had the means to do so. We’ve had people go on glamorous holidays and cruises – things they’ve always dreamed of.
What if a client’s circumstances change during the application process?
As part of our process we constantly review and adapt our advice to the changing circumstances of those individuals. Because these are long-term arrangements, we make doubly sure that the mortgage is the appropriate solution at that point in time. Looking after the client is vitally important to us.
What criteria is looked at for equity release?
The main criteria focus on your age and the property. You have to both be over the age of 55. Lenders also look at the property value, location and construction type. Your health can also be a factor.
Those are the three main parts that the providers will look at in assessing what may be available on an equity release mortgage.
What about beneficiaries concerned about their inheritance?
We are very mindful of this. We recognise this situation in our advice process, and from the outset we actively encourage our clients to involve their children in our discussion and in our meetings.
Ultimately, lifetime mortgages may well have an impact on the funds left available to those beneficiaries. We also discuss with them the option to ringfence part of the property value and secure that for inheritance. It’s vitally important that all members of the family, where possible, are involved in this decision process.
Have you got anything else you’d like to add?
For anybody considering lifetime mortgage products, you need to get independent financial advice from a company that is established and whole-of-market.
That company can then go to all the equity release providers and come up with the most suitable proposition for you going forward.
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.