Don’t believe everything you hear
Carrots don’t make you see in the dark. Vikings didn’t have horns on their helmets. And you can’t see the Great Wall of China from space.
We hate to break it to you, but that’s the thing about myths – they’re not true. And the same goes for common misconceptions around equity release, which are holding back some over 55s from releasing the equity tied up in their home without having to sell up and downsize.
Equity release has come a long way over the years – and more and more homeowners are choosing to release equity and take money from their biggest asset to boost their income in retirement, with either a lifetime mortgage or a home reversion plan. But even though times have changed, some people still confuse today’s plans with those that have received bad press in the past.
What’s caused all this confusion?
In the 1980s, there was a mini equity release boom in the UK, but unfortunately products offered were not as consumer focussed as they could have been and this resulted in bad experiences. Some products were poorly designed so a borrower could end up in negative equity (when the value of the property is less than the debts owed on it) and pass on debt liability to their estate.
Today, equity release is a far cry from the products of the ’80s, ’90s and early 2000s – it’s fully regulated and consumers are protected.
With this in mind, we’ve decided to set the record straight by busting five common equity release myths. There’s no denying that equity release isn’t the right route for everyone, but we think you should have some information you need to help you consider if it could work for you. So, let’s take a closer look.
Myth: “It’s unregulated”
Reality: Actually, you’ll find that since 2004, the equity release market is fully regulated. 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. There is significant consumer protection in place – whether you choose a lifetime mortgage or a home reversion plan.
For extra piece of mind, there is also an industry trade body, the Equity Release Council (ERC), that represents providers, qualified advisers, intermediaries and surveyors who work in the sector. Members must adhere to the Council's Statement of Principles, which puts in place safeguards for you.
Myth: “I can’t leave an inheritance”
Reality: 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.
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. They’ll be able to find and tailor a suitable equity release plan for you.
Myth: “I’ll leave my family in debt”
Reality: When you take out an equity release plan in the form of a lifetime mortgage or home reversion scheme, you can rest easy knowing you’re fully protected by a “no negative equity” guarantee. This is 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.
Find out more about how much equity release could cost.
If there’s a downturn in the property market and your house was to fall in value (and the sale of your property wasn’t enough to repay the plan), any debt would be written off when the house is sold.
Myth: “I could lose my home and be forced to move out”
Reality: 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 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. ERC rules state that, when you take out equity against your home, you and your partner still jointly own the property and you both have the right to live there as long as you want.
Myth: “I’ll be stuck in this house for the rest of my life”
Reality: Actually, this isn’t true with most plans – 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.
One thing to note is that the value of the property you are moving to must be enough that the equity release provider is happy to lend the same amount against it. If not, you may have to pay off some of the amount you’ve borrowed early.
Now you know a bit more
So, there you have it – we’ve demystified the myths that may have been stopping you from considering equity release. If you want to find out more about the ins and outs of what it could mean for you, why not read through our handy equity release guide today? And if you want to get your head around all the jargon, feel free to take a look at our A-Z of equity release and get to know all the terms.
Remember – releasing the equity in your home is a big decision, so it’s important to consider all of your options and weigh up the pros and cons before making any final decisions. You must seek professional advice, so you have a full understanding of what’s involved.