Is Equity Release Safe?

Equity release schemes are designed to give borrowers over 55 access to the cash tied up in their homes, but they don’t come without risks.

In this guide, we examine safe equity release, its advantages and disadvantages, and how to get the right financial advice for your circumstances.

To determine whether equity release is right for you, speak with one of the expert brokers we work with. They can provide tailored advice to your situation and suggest an alternative.

Is equity release safe?

Equity release is much safer than it used to be. It earned a bad reputation due to the debt complications that arose between the 1980s and 1990s, which resulted in many people losing their homes.

Today, however, equity release products (including lifetime mortgages) are regulated by the Financial Conduct Authority (FCA), so you cannot lose your home through equity release.

The Equity Release Council approved schemes have safeguards to cover off the concerns most people have. As a result, equity release mortgages are now much safer than they previously were, though whether this product is right for you depends on your financial goals and personal circumstances.

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

If you’re considering equity release, the Equity Release Council has rules that you should be aware of. These rules are important because they’re designed to protect homeowners in the worst-case scenarios.

Key guidelines include:

• No negative equity guarantee: Borrowers will never owe more than the value of their home.
• Right to stay in the property: Customers can remain in their home for life, provided they follow the loan terms.
• Portability: The plan can be transferred to another suitable property.
• Fixed or capped interest rates: Lifetime mortgages must have a fixed or capped variable rate.
• Right to make partial repayments: Reducing interest build-up without penalties.

Mortgage 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.

If you would like information about mortgage lenders for whom the Equity Release Council qualifies, please make an enquiry. The experts we work with can discuss this further with you.

What are the risks of equity release?

With lenders who adhere to the Council’s standards, equity release dangers could come in the form of additional expenses (mainly interest) that you could incur by undertaking a release.

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

Aside 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.

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 can no longer use the house, and 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 product such as an interest-only mortgage, it may be possible to refinance to an equity release product 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 so 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 benefits. 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 Department for Work and Pensions (DWP) or local authorities treat it the same – it’s your money, so they will use it in their calculations for eligibility.

What’s the worst that could happen?

The Equity Release Council’s ‘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 can no longer 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 you shouldn’t be put off by them – not only is it safer than it’s ever been, but you can also get the right advice before making any decisions.

The advisors we work with are experts in this area and can help you decide whether equity release is the right option for you. They can introduce you to the lender offering the best deal for somebody with your needs and circumstances.

Speak to an equity release expert

Equity release is a significant financial decision, but with the right advice, you can make an informed choice that aligns with your goals. Speak to a specialist today to explore your options and take the next step toward achieving financial freedom in later life.

The brokers we work with are fully trained in advising on equity release products. Our broker-matching service will put you in touch with a later-life lending specialist who will thoroughly assess your financial circumstances and discuss your plans before exploring all possible borrowing options. This will ensure you make a fully informed decision.

Call today on 0330 818 7026 or enquire online to arrange a free, no-obligation chat.