Equity release schemes are a popular way for homeowners over the age of 55 to borrow money. Unfortunately, unregulated lending and products that were prevalent in the 80s and 90s have given all forms of equity release a bad reputation and led to many misunderstandings about how equity release schemes may affect individuals. But the products of today’s market are significantly different from what was available in previous decades.
Below are the 10 most common misconceptions we hear about equity release:
‘It’s unregulated and dangerous.’
Today, all UK equity release plans are regulated by the Financial Conduct Authority. Additionally, both ‘lifetime mortgages’ and ‘home reversion plans’ are regulated by the Equity Release Council (ERC), a consumer-centric trade body, ensuring an extra layer of regulation. Advisers are there to make sure that you only go down this route if equity release is right for you.
‘I won’t be able to leave my family an inheritance.’
Although engaging in an equity release plan will certainly affect the value of the estate that you are able to leave as inheritance, there are a variety of plans available that allow for you to take inheritance into consideration. Some plans include an ‘Inheritance Protection Guarantee’ which allows you to determine a fixed percentage of your home’s value that you would like to protect for your estate. There are many ways to ensure that equity release doesn’t harm your financial legacy.
‘I’ll leave my family in debt.’
These days, the majority of providers, and all plans guaranteed by the ERC, offer customers a ‘no negative equity guarantee.’ This means that you cannot owe more than the value of your home and no debt will be left to the estate. The debt incurred is repaid by the sale of your home after the event of your death or moving to long-term care.
At this point, your family generally has 12 months before progress must be made in the sale of your home. Additionally, if there is a downturn in the market and your home is no longer worth the amount borrowed, this guarantee ensures that any debt will be written off upon the sale of the house.
‘I won’t own my home anymore and might even lose it.’
There is no need to be concerned about finding yourself no longer the owner of your own home. If your priority while looking for solutions is being able to remain the owner of your home, an option to consider is a lifetime mortgage. This plan keeps your home in your ownership but still offers flexibility. Often without adding a monthly repayment.
‘Equity release is only a desperate, “last resort” option.’
The view of equity release as the province of the desperate can be attributed to the equity release schemes from earlier decades. There may be any number of reasons that someone might start an equity release plan. People from all walks of life are exploring their options with equity release. If you are looking for more financial flexibility, starting a conversation about equity release is worthwhile.
‘If my circumstances change, I’ll end up with early repayment charges.’
Charges for early repayment can absolutely be expensive and fiscally painful. However, they may not apply in every instance. There are options available now that have enhanced the flexibility of equity release plans and you will likely have little difficulty in finding a suitable plan, such as voluntary partial repayment.
Also, if your circumstances have changed and you will be living in long-term care, the situation is again different. When moving into a care home, your equity release plan comes to an end (unless you have applied for equity release as a couple and your partner is still living in the house). When this happens, the money borrowed will be repaid to the lender, usually from the sale of the home.
‘I’ll be stuck in this house for the rest of my life.’
Advisers know that life can be unpredictable sometimes and that the house you are in right now may not be where you would like to stay forever. With this in mind, there are likely to be options for plans that are portable. These types of plans can move as you do.
‘Equity release can’t help me on an ongoing basis.’
Many people see equity release as a one-time, lump-sum payment they can take out of the value of their home. However, equity release is frequently used, instead, as a pension supplement or a fixed monthly income. These payments can be smaller amounts that are taken on a regular basis. This is done through a method called ‘drawdown.’ This may be less than the guaranteed income you could find through other means, but your adviser should be able to help you make that decision.
‘It’s too complicated and I can’t understand it.’
It’s ok to feel this way. Navigating equity release schemes can be complicated, but there are many regulations put in place to take care of your financial wellbeing. Importantly, equity release plans are only available as an advised product and can only be undertaken with a solicitor and qualified adviser. You will never need to do this alone.
‘I will have to deal with companies I don’t trust.’
Without knowing the companies you will be working with, it can be overwhelming to entrust both your finances and your home to someone. However, you can be assured that you are with a trustworthy organisation with these two tips. Firstly, make sure that they are offering FCA authorised and ERC guaranteed plans that take your financial future into account. Secondly, meet them face to face! Being able to place a person to the advice you are being given is often very helpful.
Entire FS are a local firm in Altrincham who want to help you along your equity release journey. At Entire FS, we are your neighbours and we love to have people stop at the office to say hi and ask questions.
Equity release doesn’t have to be scary. With the help of Entire FS, your home can offer you financial options. Give us a call on 0161 711 0999 so we can discuss this in more detail.
A lifetime mortgage is secured against your home. To understand the features and risks, ask for a personalised illustration.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.
We do not arrange Home Reversion plans.