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How safe are equity release schemes?

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 26th June 2019 *

Are equity release schemes safe? It’s a hot topic, particularly amongst older homeowners, and a question we’re asked all the time.

You may be interested in finding out more about how it works, and if it’s right for you. Alternatively, you might have found it difficult to get the right equity release arrangement for your needs. Not a problem. We get lots of these enquiries and the experts we work with know exactly how to help.

So, if you need some friendly advice, or help in exploring your equity release options, just get in touch with one of the experts we work with.

So, how safe is equity release? We’ll cover this below, along with the ins and outs of these mortgage products, across the following topics...

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Is equity release a ‘safe' option?

How risky equity release is has changed a lot over the years. It’s a lifetime mortgage and the reason someone may think it’s “unsafe” typically was due to the now rare home reversion schemes, where you could get kicked out and end up with nothing.

Equity Release Council approved schemes have safeguards to cover off the concerns most people have, the main one being that now you cannot lose your home through equity release.

What are the Equity Release Council guidelines and why are they important?

If you’re considering equity release, something to be aware of are the rules put in place by the Equity Release Council. These are important; they’re designed to protect homeowners in the worst case scenarios.

Lenders who adhere to these rules are generally a much safer choice. This way you’re never at risk of losing your home, or compromising the rest of your estate.

So, what are the risks of equity release? Read on to find out, or make an enquiry and the experts we work with with discuss their product in depth over the phone.

The risks of equity release

Assuming you’ve chosen a lender that adheres to the Council’s standards, equity release dangers come in the form of the additional expenses (mainly in the form of interest), that you could incur by undertaking a release.

Many equity release agreements don’t come with the requirement for you to make monthly payments on the debt. Without paying the principal, the interest builds over time.

Asides from the interest, there are usually set-up fees. These can include the lender’s own arrangement fees, a surveyor’s valuation and the solicitor’s fees. This all adds up.

So what are the potential snags you might hit with an equity release mortgage? Read on to find out...

Could I lose my home?

No - this is not one of the issues equity release borrowers need to worry about The seller only recoups their money when you’re no longer able to use the house - you’re guaranteed 'right to tenure’ until you pass away, or go into long term care.

Since equity release mortgages come with no risk of repossession, if you’re a borrower on a products such as an interest only mortgage, it may be possible to refinance onto equity release to make your home safe from repossession.

Could I lose any of my other assets?

No. Council guided lenders ring fence your charge to the property itself - they can’t take anything from the rest of your estate.

Will it affect my benefits?

Possibly. Moving money from your equity to your savings could affect your eligibility for pension credit and council tax benefit. Means-tested benefits like these can be adversely impacted by equity release whether you put the money into savings, spend it or even gift it. The treatment by DWP or local authorities is the same - it’s your money, so they'll use it in their calculations for eligibility.

So, what’s very the worst that could happen?

The  Equity Release Councils ‘no-negative equity guarantee’ ensures that you can never end up owing more than the value of your property.

The worst case scenario is that you could incur significant debts that will be paid off when you’re no longer able to use the house. As a result, you might not be able to pass on the property to your inheritors (assuming you plan to leave something behind).

But don’t panic… specialist advice is available

There are a lot of scare stories out there about ‘the perils of equity release’, but don’t worry, the advisors we work with are experts in this area and can help you decide whether equity release is the right option for you, and since they have access to the entire market, they can introduce you to the lender offering the best deal for somebody with your needs and circumstances.

Want to make sure you get the right equity release arrangement?

We can help you. OMA offers a 5-star service with access to expert brokers who:

  • Know the ins-and-outs of the equity release market: they’re OMA accredited, and have passed the LIBF training course
  • Know the exact lenders who are best for equity release
  • Cover the whole of the mortgage market
  • Are members of the equity release council

Speak to an equity release expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 26th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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