Horrible Stories of Bad Equity Release Decisions in 2022

Equity Release Nightmares & How They Can Be Avoided
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Choosing Whether or Not to Release Equity When You Retire Can Be a Tough Decision. Many Factors Go Into This Decision, and It Is Important to Consider Them All Before Making Your Final Choice.

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If not careful with equity release, your retirement dream can soon become a nightmare!

If you’re over 55 and looking to release equity from your home, you must know about the horror stories involved with bad equity release decisions.

Luckily for you, we’ve combed the market, looked into numerous instances of equity release, and found the most vital stories to share.

By reading this article, you’ll:

  • Be in the know about equity release horror stories.
  • Discover how to avoid equity release from negatively impacting your life.
  • Learn the signs of how to know if equity release could be right for you.

Here’s how to ensure equity release is not a bad financial decision for you and your family.

Horror Stories of Equity Release

One of the common equity release horror stories is when the equity release interest surpasses the value of your property.

This means the borrower is left owing more than what your home sells for.

Fortunately this is prevented with the ‘no negative equity release’.

A Brief List of Different Equity Horror Stories

The great news is that there are ways to avoid becoming an equity release horror story statistic.

The majority of these stories are from people who were unaware of the amount of equity released from their homes.

This is easily avoidable if you receive clear communication from your independent financial adviser and equity release plan provider.

In addition, the vast amount of these stories come from people who made poor investment decisions using the cash from their equity release plan.

Unlocking too much cash and spending it badly, or selecting the wrong plan, can leave you cash-strapped in the future.

Before considering equity release, be fully aware of the pros and cons.

You must also be sure to think about your entire retirement and not just your short-term financial needs.

Negative Equity

One of the most frequent equity release horror stories occurs when the interest charged on the equity release exceeds the value of the property, in which case the borrower is left owing a great deal more than what the property is worth.

Some people make the mistake of not paying attention to how much equity they are releasing and end up with negative equity after taking out a loan.

Luckily there is a ‘no negative equity guarantee‘ set out by the Equity Release Council2.

This means that when you pass away or go to permanent care, your family will never owe more than the value of your estate.

It’s really important to educate yourself about all types of investment options and equity release alternatives so you know exactly what risks come with each different decision.

If you’re considering an equity release plan, ask yourself the following:

  • How will my lifestyle change in the future? (This should include food and activity costs)
  • What debts do I need to pay back with my equity release money?
  • Could my plan land me with negative equity?

Despite the ‘no negative equity guarantee’, negative equity can still be a concern because it will mean that none of your estates will be available for your inheritance.

However, ask your financial adviser about inheritance protection.

This way, you can guarantee that a percentage of your estate3 will remain open for your heirs to inherit.

Compound Interest

The interest rates and fees for an equity release plan can be much higher than with other types of loans.

Compound interest4 is another thing to consider because the more you have in debt, the more money will be added to your loan balance every month due to this type of interest rate.

The total cost that someone pays overtime on their loan could end up being huge when they add compound interests into it, especially if high-interest rates come from not paying off what was owed quickly enough at first.

It’s good to know these things before signing any agreement, so you’ll know exactly how much risk comes along with each different decision.

You should also read all parts of any contract carefully to make sure everything has been explained to you fully.

Interest Rate Reduction Graph

Equity Release Horror Stories

Important Reminder: You might be able to switch equity release plans. If you took out a plan before 2020, you should see if you can move to a new plan with lower interest rates.

Debts That Double

Many people make the mistake of not exploring other options when considering an equity release loan first before deciding what they want.

Property owners need to explore all different avenues.

Hence, they know exactly what risks come with each type of investment decision before going ahead with anything at all.

This includes understanding potential financial consequences and lifestyle changes, negative amortisation5 loans, and doubling debts.

Early Repayment Charges

Another big problem is that some people don’t realise there are early repayment charges for those trying to repay the loan before they pass away or move into permanent care.

These fees can be as high as 25% of the outstanding balance, making paying back a lot more difficult than expected.

Life doesn’t always go as planned, and you might find yourself needing to relocate to a new country, forcing you to pay back the loan in advance.

No Inheritance for Your Family

It’s also important to consider how much inheritance you will give your family when choosing an equity release plan.

You’re essentially using the money locked into your home that would normally be paid off in full.

You can opt for inheritance protection or give your family an early inheritance with your equity release money. Speak to your financial adviser about the matter.

Inheritance can come in many different forms, and it’s important to explore all options before making any decisions.

Common Questions

How Can I Avoid the Financial Consequences of an Equity Release Plan?

What Steps Do I Need to Take if I Want to Avoid Doubling My Debts?

What Will Happen if I Cannot Repay the Loan Before It's Due in Full?

How Does Negative Amortization Work With These Loans?

In Conclusion

It’s important to do your research.

Be sure to explore all of the available options and consult with a financial advisor before committing yourself to an equity release agreement.

You don’t want to be stuck in debt for years or decades.

Equity releases are not right for everyone, but they can work out well under the right circumstances.

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Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
John Lawson

Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.
francis

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
kath icon

Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.
nicola

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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