I think you´ll agree with me when I say…
The safety of any product is paramount. No one wants a financial product that does not serve his/her interests.
That said, equity release has its parameters that make it an excellent option in the right circumstances.
By checking out this straightforward guide, you can find out how sure equity release is and decide whether you should take out a plan or not.
Is It Safe Though?
As a result of corrupt practices in the 1980s and early 1990s when a couple of unscrupulous lenders planned expensive deals that ended up having homeowners owe more than the value of their estates, equity release scheme rightly got a bad name, thus leading to uncertainty in consumers.
Nevertheless, there no need to worry
With the new regulated Financial Conduct Authority, things have improved drastically, equity release is safe and progressively becoming a valuable tool for thinking in a retirement more comfortable.
To ensure that you get the right plan, the council stipulates that:
- All rates must be fixed,1 or if not, the plan provider must have an upper limited or cap that is secure for the lifetime of the loan.
- You have the right to live in your property for life or until you move into long-term care, just so long as you abide by the terms and conditions of your equity release2 scheme.
- You can choose to or not move to another property as long as your lender is satisfied that the new property offers continued security on your equity loan.
- Any lifetime mortgage plan must come with the ‘No negative equity’3 which means that when your home is sold, and solicitors and agents fees have been taken into account if the amount left is not adequate to pay the unsettled loan, neither you nor your estate will be liable to pay any more.
Moreover, for your security, the Council also offers strict guidance on the sales process and demands that you can only take out an equity release loan if you get proper financial guidance and independent legal advice.
If you’re still thinking is equity release a safe option? Read this
Make Your Retirement Comfortable with Equity Release
Ever since a disastrous period in the late 1980s and early 1990s when most equity release schemes were unregulated, it has suffered from suspicion and distrust among homeowners.
Most people were terrified of taking out these plans. However, with various bodies in play today and with updated financial plans, things are now different.
Reasons Why Equity Release Is More Secure Today
Although equity release is one of the most popular financial product in the market right now, there are still various concerns around it, which makes some people asking: how safe is equity release?
Well, here are some of the few reasons why equity release is considered to be better than in the past and can be the best decision you can make this year.
#01. The Financial Conduct Authority Regulates It
FCA4 is the official financial products watchdog, oversees and regulator in the UK.
What does it do?
The trade agency authorises the lenders, brokers and financial advisers who deal in offering equity release services.
It also ensures that these lenders are following the stipulated codes of conduct.
Moreover, with FCA in play, it means you have adequate and appropriate protections in place.
#02. The Equity Release Council
The ERC is the equity governing body,and thus it insists that its members heed to a strict code of conduct designed to guard consumers.
Some of these safeguards include:
- Every consumer should receive financial and legal advice
- All equity release products must have a ‘no negative equity guarantee’ – your loved ones will not have to payback the excess of the value was when you took out the plan
- You have the right to reside in your home for life
- If you want to take out the equity from your home, you have to have at least one or two face-to-face meetings with an independent solicitor
Therefore if you choose to take out an equity release plan, ensure that your plan provider is a registered member of the Equity Release Council.
#03. Your Family Will not be Buried in Debt
If you want to take out a lifetime mortgage with an approved equity release provider, you are most likely to benefit from the no negative equity guarantee.
The ‘no negative scheme’ was set to protect you. It allows you not ever to owe more than the value of your property – and you won’t you saddle your kin with any debt. Thus, if that was something you were troubled about, you need not worry.
Even when your residence decreases in value significantly and putting it up for sale wasn’t enough to pay back your loan entirely, your lender will write it off when you breathe your last or move into long term care.
#04. You Have the Right to Remain in Your Residence
If you have no clue about the perks that come with equity release, you probably think that you sell the rights to live your home after unlocking the equity.
However, with a lifetime mortgage, you get to reside in your home. You won’t have to sell any part of your property to unlock the capital you require– you’ll be borrowing against the equity since a lifetime mortgage is a debt against it.
Therefore, you can continue residing and owning your home.
Moreover, as per ERC’s rules, when you decide to unlock the equity from your property, if it is a joint partnership, you are assured to remain the sole proprietor until you both die, or you both go into permanent care.
#05. You Can Move House
Most people believe that taking out an equity release plan means being tied up to your current estate forever. Well, that’s not the case. If you want to move houses, you can do so.
The ERC offers you the right to take your equity release plan with you, as long as you’re relocating to a ‘suitable alternative estate’ – a place that meets the lending rule of your plan provider. It’s worth keeping in mind that if you were to move to a less expensive home, you might have to payback some of the amounts you owe, depending on your lender.
#06. You Must Consult an Advisor
As per the ERC’s regulations, you must receive advice from a suitably qualified professional before heading on to take out a plan.
Your adviser5 must also have taken special qualifications to become an equity release consultant, and if you’re unsure that he/she is qualified, the Equity Release Council has a member’s directory on its website where you can confirm this.
#07. You May Hand an Inheritance
Since you repay equity release plans (plus the interest) when your plan provider sells your home, it means your whole estate will not be an inheritance.
However, if there’s anything left over after everything’s been paid off, that can go to your heirs (as per your will).
If you, however, want to guarantee an inheritance for your family, your provider can offer you a particular option where you can choose to ring-fence some of the value of your estate. You only have to ensure that you let your adviser know, so they can find an equity release plan that suits your needs.
The Flexibility of Equity Release
Unlike the traditional mortgages, equity release plans provide you with peace of mind. Most of the schemes don’t require you to make any repayments and, as such, you cannot get into arrears, default or have your property repossessed for non-payment.
Are equity release schemes safe?
As the equity release market continues growing and with more products coming up every day, most providers give you plans with greater choices. They are:
- Schemes with fixed rate for life, meaning you’ll always know how much you will have to payback in the future
- Fixed early repayment charges, you‘ll be aware of the exact penalty, if you wish to repay your plan early
- Schemes permitting you to make ad-hoc voluntary payments which in the long run aid you in managing your future balance
- Downsizing protection elements make sure you can repay your equity release scheme, no fine, if you move home after five years from the inception of the plan
Equity release can be a great option in the right situation. However, before making any final decisions, it’s imperative that you make sure you understand what’s involved and whether equity release is right for you.
With that in mind, you should always ensure that you seek advice from an independent adviser, who will talk you through the details, thus helping you make an informed resolution.
If you have any questions on the safety, eligibility and workings of this, be sure to click here not only to see how much equity you can release but also to chat with an expert.
Equity release involves unlocking the value of your estate (with home reversion schemes – selling all, or a part of your property). In as much as it’s an incredible financial plan, it may work out to be more costly in the long run than moving into a smaller apartment. It also alters your means-tested benefits. Prevents you from enjoying the increasing estate values and reduces the amount of inheritance you leave your family.
Learn More: Is Equity Release Safe?
Yes, unlocking the equity in your estate can be a fantastic idea – if you want to get some extra cash and don’t want to move to another neighbourhood.
Nonetheless, it can reduce the amount of inheritance you leave your family. So, you have to consider taking out a plan that features the negative guarantee and allows you to ring-fence some value of your estate.
Learn More: Is It A Good Idea?
Yes, there are several alternatives to taking the equity release plan. Some of the options include:
- Moving to a less expensive home
- Requesting for financial help from your friends or family
- Using your savings
- Capitalizing on your investments and assets
Learn More: Equity Release Alternatives
Well, currently, the typical rate on lifetime mortgages is 5%. Although you can get some rates under 3% – it’s cheaper compared to the rates offered several years ago. However, it’s still significantly higher than the traditional mortgage rate.
Learn More: Equity Release Costs
How much money could you release?
An equity release allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.