Equity Release Companies to Avoid in 2022
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Make sure you know about these equity release companies to avoid and don’t get duped by an illegitimate equity release provider that will end up ruining your retirement!
In the first half of 2021 alone, 36 million UK-based individuals were victims of scams, and many of these instances were mortgage fraud.
What You’ll Learn in This Article:
Releasing equity has never been safer, but only if you avoid dubious lenders.
The last thing you want to do is release cash, only to realise that you’ve been let down, costing you £1000s.
Our expert team has narrowed down the top equity release providers in the UK, and from there, discovered what they all have in common.
In addition, we’ve looked into the regulations required to be a registered equity release lender and we’re here to share.
The question is, how can you know if your potential lender is legitimate?
Let’s find out now!
What’s Equity Release?
Equity release is a loan taken against your estate’s value, while still having the opportunity to remain living on the property for the rest of your life.
In addition, the loan, plus interest, is only required to be repaid when you die or move into long-term care.
Before you embark on your journey, you must be aware of what’s an equity release mortgage to ensure you make sound decisions.
For a summary, watch the video below, and then continue reading to discover more!
What’s an Equity Release Company?
An equity release company is a lender that offers equity release plans.
Later-life mortgage providers, banks, and building societies are the most common lenders of equity release products.
The best equity release lenders are members of the Equity Release Council.
Equity Release Companies to Avoid in Aug 2022
Avoid any equity release companies that are NOT a member of the ERC.
Equity release has had a bad reputation in the past, with many dubious lenders taking advantage of elderly folk, and providing dodgy plans with high interest rates.
Since 1991, the Equity Release Council1 has regulated equity release, implementing strict laws that protect the consumer.
With that in mind make sure you:
- Avoid any equity release providers that aren’t members of the Equity Release Council – the Equity Release Council is there to protect you from the possible risks of equity release.
- Avoid equity release companies that don’t offer a no negative equity guarantee – without one, your debt will not be capped at the sale value of your home.
- Avoid equity release companies that don’t offer capped or fixed interest rates on a lifetime mortgage, or variable rates with an upper limit – interest rate that aren’t fixed could lead you to owe more money than expected at the end of your loan.
- Avoid any equity release providers which don’t let you stay in your home until your death or until moving into permanent residential care – the right to remain in your property for life.
- Avoid companies that have very early or high repayment charges – research the whole equity release market to discover the options that are the most affordable and that protect customers. Seek guidance from a whole-market financial adviser.
- Avoid lenders that give you large loans without assessing your personal circumstances – equity release lenders should have your best interests at heart.
- Avoid any equity release companies that don’t offer the right to move to another property – should you wish.
Most Common Equity Release Types
You have 2 main equity release types to consider, a lifetime mortgage and a home reversion scheme.
- Lifetime Mortgage – As the most common type of equity release, a lifetime mortgage allows you to unlock cash from your home, while retaining 100% ownership of your estate.
- Home Reversion Scheme – Differs from a lifetime mortgage in that you’ll sell all or a portion of your home to your lender. When you pass away or move to a care home, your house will be sold, and the lender will take their share of the estate.
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Pros & Cons of Equity Release
Like most financial products, there are pros & cons of equity release.
The main advantage of equity release is that you can gain access to tax-free cash.
The main disadvantage of equity release is that the money you unlock will need to be paid off with interest.
You must be aware of the advantages & disadvantages of equity release before confirming if it’s right for you.
We strongly advise that you discuss these with your financial adviser and loved ones.
Advantages of Equity Release
- Tax-free cash – The equity you unlock is completely tax-free.
- Financial freedom – You’ll have the means to live a financially-free retirement.
- You can stay in your home – You have permission to stay in your home for the rest of your life.
- No monthly repayments, unless you want to – You’re not required to make any monthly repayments in your lifetime, unless you volunteer to do so.
- Fixed interest rates – The rates you pay will remain the same for the life of the loan. View the most latest rates here.
- Flexibility – You can opt for a lump sum, drawdown facility, a combination of the both, or a monthly salary.
- Don’t sell – You can retain 100% ownership of your home.
- No specific uses – You can use the money in any way you wish.
- No negative equity guarantee – meaning that your family won’t be left with paying more than the sale value of your home.
- Fully regulated – You are protected by the Equity Release Council.
Disadvantages of Equity Release
- Affected inheritance – You’ll leave your family less inheritance.
- Benefits Impacted – Unlocking equity could impact your qualifying for means-tested benefits.
- Compound interest – The interest can roll-up quickly if you don’t make regular interest repayments.
- Transferring your plan isn’t easy – Moving house with equity release can be challenging.
- Early repayment charges – If you pay off your plan early, you might incur early repayment charges.
- Less value – You won’t recieve the full market value of your home.
- No more equity – You won’t be able to take out other loans against your property.
- Substantial costs – Equity release does come with it’s costs.
Overall, equity release is a worthwhile idea if you’ve worked through all the pros and cons.
Are Equity Release Schemes Risky?
Equity release schemes are not risky because the Equity Release Council and Financial Conduct Authority (FCA) oversees the industry.
Should you be cheated through the equity release process, you can claim compensation.
Like with all financial products, there are risks involved with equity release.
However, if you give it a lot of thought, and seek expert advice, you can really benefit from this product.
It’s essential to use a regulated company that’s reliable and to consider all types and alternatives to equity release.
Alternatives to Equity Release
The most popular equity release alternative is to downsize or sell assets.
However, there are various other alternatives to equity release mortgages that you must discuss with your financial adviser.
What Equity Release Providers Should I Avoid?
You should avoid any equity release providers who are not members of the Equity Release Council.
Which Providers Offer a 'No Negative Equity Guarantee'?
All providers that are members of the equity release council will offer a no negative equity guarantee.
What's a No Negative Equity Guarantee?
The no negative equity guarantee is designed to ensure that your family cannot owe more than the value of your home.
Once you have paid back your debt up to the value of your home, the remainder is written off. This is why the best equity release companies are ones that have a ‘no negative guarantee.’
What Can Equity Release Be Used For?
Equity release funds are tax-free and can be used for anything you wish (providing it is legal). The most popular uses of equity release funds are:
- Clearing debts – repaying mortgages and unsecured debt
- Property renovations & home improvements
- Boosting retirement income
- purchasing properties
- Giving an early inheritance to family
- helping family
- Funding holidays and other bucket-list experiences.
How Much Does Equity Release Cost?
Equity release costs between £1,500 and £3,000, depending on your selected vendors. Plus, if you opt for a lifetime mortgage, you’ll also be charged compound interest.
Who Can Get Equity Release?
Equity release is only available to those aged 55 and over who own property in the UK.
What is the Equity Release Council?
Originally launched in 1991, the Equity Release Council (ERC) is an organisation that is supported by the leading providers of equity release within the UK.
If equity release is done correctly, it can be an incredible way to give you a cash injection while still being able to live in your precious family home.
However, you MUST work with a trusted financial adviser and select a lender who holds membership with the Equity Release Council.
Remember that equity release companies to avoid include those that don’t offer a ‘no-negative’ guarantee and aren’t members of the ERC.
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