Is equity release safe?
Equity release is safe because providers are regulated by the Financial Conduct Authority (FCA). Furthermore, the Equity Release Council (ERC), a trade body protecting homeowners, has put safeguards in place. An important feature in today’s equity release plans is the no negative equity guarantee, which means you’ll never owe more than the property is worth when it is sold.
Taking out equity release is a big decision. Read on to learn more about myths, and how to get the right equity release advice.
It is always important to remember that any inheritance you want to leave will be impacted and any means-tested benefits could be affected.
Use our 60 second equity release calculator
Use our 60 second equity release calculator
Use our equity release calculator
Use our 60 second
equity release calculator
Release tax-free cash from your home
What safeguards are there for equity release plans?
Equity release has become more popular over recent years due to falling interest rates and improved regulation.
Today, equity release plans are safe because they are regulated and offer protections from the FCA.
Financial Conduct Authority (FCA)
Because the FCA regulates equity release products, all advisors, brokers and lenders must be authorised by the FCA to conduct their business. The FCA also has strict codes of conduct and rules that equity release providers must follow.
Equity Release Council (ERC)
The Equity Release Council is a trade body that represents its members in the equity release industry.
All equity release products that are ERC compliant have to adhere to the Council’s product standards.
- No negative equity guarantee, which means you will never need to pay back more than the value of your home. It also gives you the freedom to transfer your scheme to another property without penalty, subject to the lender’s terms and conditions.
- You are required to receive financial and legal advice.
- “Security of tenure” means you can stay in your home for life.
- For a lifetime mortgage, interest rates must be fixed or variable. If they are variable there must be an upper limit which is set for the life of the loan.
*Information sourced from equityreleasecouncil.com
Not all equity release providers or advisers are members of ERC. You can find a list of all members on their website.
Equity release myths
Myth - It's unregulated
All equity release providers and advisers are regulated and supervised by the Financial Conduct Authority (FCA) – which regulates and protects to put your mind at rest.
Myth - I can't leave an inheritance
Even though you won’t be able to leave your home behind for your loved ones, the money from the sale of the home will be used to pay off your loan – and anything leftover will go to your estate.
Myth - I'll leave my family in debt
When you take out an equity release plan in the form of a lifetime mortgage, you’re fully protected by a “no negative equity” guarantee. if the provider is a member of The Equity Release Council and offers products that meet all their standards.
This can be guaranteed because although the amount released plus interest will be a debt against your home, the amount charged will never be greater than the value of your house. The debt will be repaid from the sale of your home on death or moving into long-term care.
Myth - I could lose my home and be forced to move out
When you choose a lifetime mortgage, you’ll still be the legal owner of your home. And when it comes to home reversions plans, you’ll sell part or all of your home in exchange for a cash lump sum – and live there rent free until the house is sold when you pass away or go into long-term care.
Plus, if you want to guarantee an inheritance for your loved ones, you can do so. You’ll be able to ringfence some of the value of your home to leave as a legacy – just make sure you tell your adviser when you meet them for the first time.
Myth - I'll be stuck in this house for the rest of my life
As long as your property meets the criteria of your equity release provider, you may be able to move and take your plan with you.
You won’t have to pay a penalty, though there are certain costs. This will be explained to you fully before you take out equity release, and it’s always a good idea to discuss the prospect of moving home with your equity release provider before setting the wheels in motion.
What's the catch with equity release?
Like most financial products, equity release will cost you money. “The catch” is simply that you will pay interest on the money you release and the amount you owe will grow each year.
Because you’re borrowing against your home, the interest, plus the amount you release will need to be paid back to your equity release provider from the sale of your home when you die or move into permanent care.
Before releasing equity, it’s important to understand how much it could cost you. You can then make an informed decision if it is the right option you.
Once you understand the costs involved, you can then weigh up the pros and cons of using equity release to top-up your pension pot and retirement income, continue living in your home comfortably, or whatever else you might need the money for.
What to consider when thinking about
To help you get started, here's a simple list of the top things you should think about when considering equity release.
- Your eligibility - do you meet the requirements?
- What you need the money for – are there any alternatives options?
- Type of plan – have you considered the different types of plans available?
- How much it will cost – have you compared interest rates?
- Your family – do they support your decision to release equity?
- Getting advice – have you got impartial advice?
- Taking your time – have you taken the time to consider your decision carefully?
Getting equity release advice
Getting advice is a necessity with equity release products.
It’s also important to talk things over with family and loved ones before making any big financial decisions. Taking out a lifetime mortgage is likely to affect them too by reducing their inheritance.
Loved ones are so important in these decisions that we’d encourage you to involve a family member in discussions with your adviser.
Questions to ask equity release advisors
Releasing equity from your home is a big financial decision. Talking things over with friends and family helps, but equity release advisers are the people who can best assess your options.
Here are some key questions to ask an advisor.
1. How much will I have to pay?
Finding out how much equity release could cost up front helps avoid any nasty surprises later and means you can compare rates for different equity release advisers. They should tell you about any set-up costs, arrangement fees and legal fees involved – as well as their own fees.
2. Are you a member of the Equity Release Council?
The Equity Release Council provides guidelines for advisers, designed to protect customers like you. The Council only accepts fully qualified equity release advisers, so membership means you’re getting advice you can trust.
With council members you’ll also get a ‘no negative equity guarantee’ with any lifetime mortgage, meaning you’ll never owe more than the value of your home.
3. What are the potential pitfalls of equity release?
Qualified equity release advisers will be able to clearly explain not just the advantages, but also the potential pitfalls of an equity release plan – like the potential impact on your entitlement to state benefits, or how equity release will reduce the value of your estate.
4. Can you advise on all types of equity release?
There are two main kinds of equity release scheme – lifetime mortgages and home reversion plans. Equity release products are evolving and innovating all the time, so you want an equity release adviser who knows their stuff and can advise you on all your options.
5.What does your advice process look like?
You want to discuss all your options and feel no obligation to proceed. Based on a (usually free) initial consultation, good equity release advisers will come back to you with their findings and personalised recommendations, to help you make a fully informed decision.
6. What if equity release isn't for me?
FCA-regulated equity release advisers are trained to discuss every option with you, which includes not going with equity release if they don’t feel it’s the right way to go. Be sure to discuss alternatives with your adviser, which might mean delaying equity release for a while until it works better for your circumstances.
7. What makes you the right equity release advisor for me?
You want an adviser with expert knowledge and experience of dealing with people in your situation. You need confidence they’re working with your best interests in mind and will be on hand to offer helpful advice at every step of your equity release journey.
If you want to read-up and find out more about equity release, here’s some of our other useful articles.