Is Equity Release a Good Thing?
Before You Start Reading…
How Much Can You Release? 👇
Is equity release a good idea in 2022 or just another scam?
With so many fraudsters out there, we check all the facts. No need to worry, we’re here to be your guide.
Through this article, you’ll learn:
- What’s equity release?
- What’s the catch with equity release?
- Is equity release safe?
- 4 little known truths about equity release
- What are the pros & cons of equity release?
- What’s the downside to equity release?
- How much do you repay on equity release?
- When is equity release a good idea?
- Is equity release a con or scandal?
- Are there any alternatives to equity release?
- What are the equity release horror stories?
- Which equity release companies to avoid?
- Does equity release affect a state pension?
- Can I sell my house if I have equity release?
- Is equity release right for you?
Our astute financial experts at SovereignBoss spend time researching the financial markets so we can bring you the facts.
Read on for more!
Why Is Equity Release in Demand?
Equity release is in demand because it’s a safe retirement product that allows homeowners to unlock their property value.
With property prices rising and product flexibility increasing, the industry is more popular than ever.
Before You Keep Reading….
Let’s See How Much You Can Release 👇
How Much Can You Borrow With Equity Release?
How much you can borrow with equity release depends on your circumstances.
It’ll always be less than your property’s market value.
The maximum amount you could be approved for depends entirely from provider to provider and takes your property value and age into account.
Contacting your financial advisor for a quote based on your circumstances is the best way to determine how much you can borrow.
Is Equity Release Safe?
Yes, equity release is safe if you use a provider and adviser accredited by The Equity Release Council.
Membership will ensure that providers are reputable and that you’re protected against negative equity and unscrupulous advice.
It’s best to follow your financial adviser’s advice on the best plan for you.
What Are the Pros and Cons of Equity Release?
Let’s have a look at the pros and cons of equity release.
It’s a big commitment, so it’s best to determine if it’s the right option for you.
What Are the Advantages of Equity Release?
The advantages of equity release are:
- Gaining access to your home’s capital as cash whilst still being able to live there.
- Using the money, you get to fund care needs.
- Being able to consolidate your debt.4
- Funding your children’s college education with the proceeds.
- Having funds to settle a current mortgage.
What Are the Disadvantages of Equity Release?
The disadvantages of equity release are:
- You reduce your beneficiary’s inheritance one day.
- If you make use of home reversion, you no longer own your home.
- You may only realise as little as 30% of your home’s value with home reversion.
- If you use home reversion, your home must be vacated quickly after passing away.
- You’re liable for the interest on your lifetime mortgage.
- You may not be able to move home if you use home reversion.
Avoiding the Pitfalls of Equity Release
These are the pitfalls of equity release you need to avoid.
You must be aware that you’ll get far less than the market value of your home.
You’ll receive much more if you sell your home or consider downsizing5, but then you would still need to pay for a new property to live in.
If you use a lifetime mortgage, especially a lump sum option, you could owe the provider more than your home’s value when you pass on because the interest is compounded.
You can manage this risk by making interest payments if you choose to.
However, if you can’t do so, you could diminish the inheritance you want to leave to your loved ones when you pass on.
By changing your income situation with equity release, you may change your eligibility for certain means-tested state benefits.
With a home reversion plan, you may not be able to move home.
It’s always best to take legal and financial advice before signing any contracts or accepting offers.
So, Is Equity Release Worth the Risk for Me?
When you decide if equity release is worth the risk for you, you’ll have to consider your financial position carefully.
Always make sure you get the best financial advice and speak to your family before making a decision.
You may want to consider the following:
- Has a financial advisor told you that equity release is your best option?
- Can our savings and other forms of income cover your retirement expenses?6
- If a reduction in your beneficiary’s inheritance isn’t a significant concern for you.
- Is downsizing an option?
- If consolidating your debt using equity release will change your financial position.
What Does the Future of Equity Release Hold?
As things stand, the future of equity release looks bright.
Last year showed record-breaking figures and 2022 is showing more of the same.
Additionally, there’s a conscious effort by the Financial Conduct Authority and the Equity Release Council to ensure all clients are protected.
Does Equity Release Affect Inheritance Tax?
Equity release may affect your inheritance tax1 because a lifetime mortgage will influence the amount of inheritance you’ll leave your loved ones.
If you give your loved ones a monetary gift using equity release funds and then pass away within 7 years, they may have to pay inheritance tax on that gift.
Will I be Protected When Using Equity Release?
Yes, you’ll be protected by The Equity Release Council, which was formed to regulate the equity release industry.
A provider who is a council member has to adhere to their rules and is also overseen by the Financial Conduct Authority.
Are There Taxes or Fees Associated With Equity Release?
Yes, there are fees associated with equity release.
The lump sum or installment payments you receive from equity release are tax-free.
Just as with any mortgage, when you take it out, there are legal fees and arrangement fees, to name a few.
In summary, you’re looking at the following costs:
- Valuation fees.
- Fees for financial advice.
- Arrangement fees.
- Legal fees.
- Completion fees.
The costs will vary between providers; however, a market average is around £3000.
What Are the Repayment Terms for Equity Release?
The repayment terms for equity release will depend on the product you choose.
Be sure to understand the repayment terms and discuss them with your financial advisor before applying.
In general, the following terms apply:
- You can repay a lifetime mortgage.
- You might incur early settlement penalties depending on your provider.
- You can repay up to 10% of the capital value per annum.
- You can repay the interest portion if you so choose.
- Home reversion is difficult to reverse.
Can I Sell My House if I Have Equity Release?
Yes, you can sell your home if you have equity release.
A lifetime mortgage can be ported to a new suitable property.
You’ll have to inform your adviser that you want to move so that they can make sure your new property is deemed suitable by your provider and assist you with any other criteria.
Why Would You Do Equity Release?
You would do equity release for the following reasons:
- To pay off your current mortgage and still live in your home.
- To bolster your income for retirement.
- Pay for your home improvements.
- Provide a living inheritance to those you choose.
- Pay for that vacation you’ve always dreamed of.
Where Can I Get Equity Release Advice?
You can get equity release advice from a certified financial adviser.
It’s always best to source advice from an FCA2 registered independent financial adviser.
If they’re FCA registered, you’re protected in the event of incorrect advice.
You can also make sure they’re members of the Equity Release Council3, which covers you further.
Independent advisers are best as they’ll make recommendations based on a complete market offering and not just on one provider’s products.
While equity release isn’t the solution for everyone, it has fantastic benefits for those who need it.
Before deciding if equity release is a good idea, consider all your options and get the best financial advice to protect yourself.
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Editorial Note: This content has been independently collected by the SovereignBoss 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.